The cost of hire for employing a new manager is calculated at $45,000. Revenue a
ID: 356349 • Letter: T
Question
The cost of hire for employing a new manager is calculated at $45,000. Revenue attributable to an employed manager has been calculated at $155,000 annually when the manager is fully functioning. However, during the first six months the cost / value add of the manager during their learning curve period has been calculated at (-$13,000, -10,000, -$7,000, -$5,000, -$2,000 and finally $0 in the sixth month).
A. Assuming after the six month period the new manager attains the positive rate ($155,000 annually) in what month will the company break even on its investment in the new manager?
B. What if the company was required to relocate the manager’s family as well, increasing the cost of hire by $60,000 – what month would the company break even on the investment?
Explanation / Answer
Answer to question a :
Total cost incurred on first 6 months including cost of hiring
= $45000 + $13000 + $10000 + $7000 + $5000 + $ 2000 + $0
Above cost of $82,000 needs to be recovered before company attains breakeven.
Since revenue attributable to a manager = $155,000annually ( i.e. in 12 months) ,
Therefore months required to recover cost of hiring = 82000/155,000x 12 months = 6.35 months ( rounded to 2 decimal places )
Therefore , cumulative number of months after which company will attain breakeven
= First 6 months ( when negative cost is incurred ) + 6.35 months as calculated above
= 12.35 months ( which falls on 13 th month)
Therefore , the month on which company will break even will be 13th month
THE COMPANY WILL BREAKEVEN ON 13TH MONTH
Answer to question b :
With increase in cost of hire by $60,000, revised cost ofhire = $45,000 + $ 60,000 = $105,000
Accordingly ,
Total cost incurred on first 6 months including cost of hiring
= $105000 + $13000 + $10000 + $7000 + $5000 + $ 2000 + $0
Above cost of 142,000 needs to be recovered before company attains breakeven.
Since revenue attributable to a manager = $155,000annually ( i.e. in 12 months) ,
Therefore months required to recover cost of hiring = 142000 /155,000x 12 months = 10.99 months
Therefore , cumulative number of months after which company will attain breakeven
= First 6 months ( when negative cost is incurred ) + 10.99 months as calculated above
= 16.99 months ( which falls on 17th month)
COMPANY WILL BREAKEVENON INVESTMENT ON 17TH MONTH
THE COMPANY WILL BREAKEVEN ON 13TH MONTH
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