The Greene Daisy Offers a spring tune-up service for power lawn mowers at a pric

Question

The Greene Daisy Offers a spring tune-up service for power lawn mowers at a price of $24.95. Labor and supplies cost and average of $10 per tune-up, and overhead charged to the operation is $5000 a month. Determine: A) The monthly volume needed to break even. B) The profit that would result if 375 tune-ups are performed per month. The Greene Daisy Offers a spring tune-up service for power lawn mowers at a price of $24.95. Labor and supplies cost and average of $10 per tune-up, and overhead charged to the operation is $5000 a month. Determine: A) The monthly volume needed to break even. B) The profit that would result if 375 tune-ups are performed per month. Determine: A) The monthly volume needed to break even. B) The profit that would result if 375 tune-ups are performed per month.

Explanation / Answer

Sales price (SP) = $24.95

Variable cost (VC) = $10 per tune up

Fixed cost (FC) = $5000

A) Break even point = FC / (SP-VC) = 5000/(24.95-10) = 5000/14.95 = 334.45 or rounded to 334 tune-ups

So the volume needed to break even is 334 tune-ups

B) If the volume of output(Q) = 375 tune-ups,

Profit = Q(SP-VC) - FC

= 375(24.95-10) - 5000

= (375 x 14.95) - 5000

= 5606.25 - 5000

= 606.25

So the profit would be $606.25

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