*Please show steps in detail on how you got the answer. Thank you* To earn money
ID: 442087 • Letter: #
Question
*Please show steps in detail on how you got the answer. Thank you*
To earn money while he is in school, Scott has decided to clean carpets on the side. Scott can either rent, lease, or buy the equipment. The costs associated with each of the three capacity options are shown below:
A)Scott estimates that the revenue for each job will be, on average, $231.0. Calculate the break-even point for each capacity option.
Option Yearly Fixed Cost Variable Cost Per Job RENT $1,050.00 $210.00 LEASE $3,150.00 $189.00 BUY $7,350.00 $147.00Explanation / Answer
Option 1: Rent: Break even = Fixed cost/(price per unit - variable cost per unit). This will give us the number of carpets required to be cleaned.
= 1,050/(231-210) = 1050/21 = 50 carpets. Total revenue at breakeven = revenue per unit*number of carpets = 50*231 = $11,550
Option 2: Lease: Break even = Fixed cost/(price per unit - variable cost per unit). This will give us the number of carpets required to be cleaned.
= 3150/(231-189) = 3150/42 = 75 carpets. Total revenue at breakeven = revenue per unit*number of carpets = 75*231 = $17,235
Option 3: Buy: Break even = Fixed cost/(price per unit - variable cost per unit). This will give us the number of carpets required to be cleaned.
= 7350/(231-147) = 7350/(84) = 87.5 or 88 carpets rounded off. Total revenue at breakeven = revenue per unit*number of carpets = 88*231 = $20,328
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