Your SPA manager just comes to you with this “Great Idea” to increase SPA revenu

Question

Your SPA manager just comes to you with this “Great Idea” to increase SPA revenue. Simply give a FREE massages for every each new customer. “With the all the new business, we will be making more money than we can count”, the SPA manager boosts.

You ask, “How many massages do we need to sale to break even?” Calculate the number of massages the SPA needs to be paid for to break even for the free massages.

Labor cost per massage $38.73

Operating Cost 15%

Overhead Cost $336

Sales price of massage $75

Estimate # of comp massages 123

Explanation / Answer

Sales price per massage = 75

Variable cost per massage = 38.73 + (75*15%) = 38.73 + 11.25 = 49.98

Contribution per massage = Sales price - Contribution =75 - 49.98 = 25.02

Overhead cost = 336

Number of massages for break even = 336/25.02 = 13.43 i.e. 14 massages

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