Case Study 1 - Break Even Analysis

Scenario:

The BeDazzled Boutique is a tourist stop in downtown Belleville, MI.

Kathy Potts, the owner of the shop, sells hand-woven blankets for an average price of $30 per blanket. Kathy buys the blankets from weavers at an average cost of $21. In addition, she has selling expenses of $3 per blanket. Kathy rents the building for $300 per month and pays one employee a fixed salary of $500 per month.

1. Determine the number of blankets Kathy must sell to break even.

2. Determine the number of blankets Kathy must sell to generate a profit of $1,000 per month.

3. Assume that Kathy can produce and sell her own blankets at a total variable cost of $16 per blanket, but that he would need to hire one additional employee at a monthly salary of $600.

a. Determine the number of blankets Kathy must sell to break even.

b. Determine the number of blankets Kathy must sell to generate a profit of $1,000 per month

4. Graph your results for scenario 1 (Label the x and y axis, fixed expenses, variable expenses, and breakeven point). You can do the graph in excel, by hand, or any way you see fit as long as you attach it to your submission.

5. Define break even analysis and its importance in the health care industry

6. Define variable costs

7. Define contribution margin

8. Define fixed costs