Jordan is developing a business plan for a residential building inspection servi

Question

Jordan is developing a business plan for a residential building inspection service he may start. Rent and utilities for the office will cost $1,500 per month. The fixed costs for a vehicle would be $325 per month. He estimates that the variable office costs will be $100 per inspection and $50 per inspection for commuting. Jordan will also spend $150/month to lease a computer and $275/month for advertising.

a) If he charges $275/inspection, how many inspections before he can start making a profit?

b) What monthly revenue will he be making at break-even?

c) What will be his profit/loss he makes an average of 15 inspections per month?

d) How many inspections per month should he make in order to be able to have a salary of $5,000/month?

Explanation / Answer

Fixed Costs
$1,500 rent and utilities
+ $325 vehicle
+ $150 computer lease
+ $275 advertising
Total fixed costs per month = $2,250

Variable Costs
$100 office costs
+ $50 commuting costs
Variable costs per inspection = $150

a) contribution margin: 275 - 150 = $125

2,250 / 125 = 18 inspections

b) 18 x 275 = $4,950

c) Total Costs: 2,250 + (15 x 150) = $4,500
Total revenue:15 x 275 = $4,125
4,125 - 4500 = -$375 so

Therefore loss of $375

d) (2,250 + 5,000) / 125 = 58 inspections

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