Break Even Analysis Homework Assignment For The Past Ten Yea

Break Even Analysishomework Assignmentfor The Past Ten Years Youve

Break Even Analysishomework Assignmentfor The Past Ten Years Youve

For the past ten years, you've worked at a PETCO Salon as a dog groomer. You're considering starting your own dog grooming business near a popular shopping center, with two friends who are also groomers. You need funding from a bank, which requires a break-even analysis. Your estimated first-year costs include fixed costs such as salaries, rent, utilities, advertising, and equipment, along with variable costs per dog like shampoo, conditioner, cologne, treats, and ribbons. You plan to charge $32 per grooming.

Paper For Above instruction

The prospect of establishing a new dog grooming business requires a thorough financial analysis, particularly regarding the break-even point—the level of sales at which total revenues equal total costs—beyond which the business becomes profitable. This analysis involves understanding fixed and variable costs, setting appropriate pricing strategies, and evaluating operational capacity to ensure viability.

Part 1: Calculating the Break-Even Point and Daily Grooming Targets

Fixed costs are those expenses that remain constant regardless of the number of dogs groomed. Based on provided data, fixed costs total:

  • Salaries: $105,000
  • Rent and Utilities: $36,000
  • Advertising: $2,000
  • Equipment: $3,000

Total Fixed Costs = $146,000

Variable costs per dog include shampoo, coat conditioner, pet cologne, treats, and ribbons, summing to:

  • $2.00 + $1.50 + $0.75 + $1.25 + $0.50 = $6.00

The price charged per grooming is $32. To compute the break-even point in units, the formula is:

Break-even units = Fixed Costs / (Price per unit - Variable cost per unit)

Substituting values:

Break-even units = $146,000 / ($32 - $6) = $146,000 / $26 ≈ 5,615 dogs

This means approximately 5,615 dogs need to be groomed over the year to break even. Assuming grooming occurs five days a week, seven hours a day, for 50 weeks a year, the total working days are:

50 weeks × 5 days/week = 250 days

To find out how many dogs each groomer must groom per day, divide total needed groomings by the number of groomers (3):

Dogs per day per groomer = 5,615 / 250 days / 3 groomers ≈ 7.5 dogs

Rounding up, each groomer would need to groom about 8 dogs per day. Given that each grooming session takes approximately one hour and there are seven working hours per day, this target is feasible and within capacity, indicating elastic demand if prices are appropriate.

Part 2: Impact of Price Increase on Break-Even and Daily Targets

If the grooming price increases to $38, the new break-even units are found by:

Break-even units = $146,000 / ($38 - $6) = $146,000 / $32 ≈ 4,562.5 dogs

Approximately 4,563 dogs are needed annually to break even at this higher price. Breaking this down per day per groomer:

Dogs per day per groomer = 4,563 / 250 days / 3 groomers ≈ 6.1 dogs

This indicates each groomer would need to groom just over 6 dogs daily, which is manageable within the same operational hours, thus allowing for better profitability with increased pricing.

Part 3: Decision-Making and Business Strategy

Starting this business depends on market demand and personal capacity. If the projected number of dogs groomed can meet or exceed the break-even volume, launching could be profitable. Pricing should balance competitiveness with covering costs and earning a profit; at least $38 per groom seems feasible based on calculations, but market conditions must inform this decision.

To increase profitability, strategies include:

  • Reducing variable costs through bulk purchasing of supplies
  • Increasing prices further if the market permits
  • Boosting marketing efforts to attract more clients
  • Adding complementary services such as nail trimming or special grooming packages
  • Improving operational efficiency, possibly decreasing grooming time per dog

In conclusion, if market analysis confirms sufficient demand at the $38 price point, and operational targets can be met, starting the business can be a sound investment. You should also explore ways to reduce costs and increase revenue to enhance profitability and ensure sustainable growth.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
  • Horngren, C. T., Datar, S. M., & Rajan, M. (2015). Cost Accounting: A Managerial Emphasis. Pearson.
  • Kolb, B. (2014). Small Business Cash Flow: Strategies for Making Your Business a Financial Success. Atlantic Publishing Group.
  • Peterson, R. (2019). Business Planning for Dog Grooming: Creating a Business Plan to Launch or Grow Your Pet Grooming Service. Vet Success Publishing.
  • Schneider, G. P. (2014). Modern Dog Grooming and Styling. Dogwise Publishing.
  • U.S. Small Business Administration. (2021). Write your Business Plan. SBA.gov.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Financial Accounting. Wiley.
  • Williams, C. (2018). Entrepreneurial Small Business Management. Cengage Learning.
  • Zeithaml, V. A., Bitner, M. J., & Gremler, D. D. (2018). Services Marketing. McGraw-Hill Education.

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