Reference no: EM133088585
Jenny and Clare enjoy working with their hands and they found that they enjoyed woodworking and making cutting boards and cheese boards on the evenings and weekends. They decided to work together and create a company called "Wood Shop", which is a small sideline business.
At first, they were not sure where they could start their business but then realized Jenny's parents own their own house and have a work shed that was not being used. Jenny's parents are allowing her to use it for $2,400 a year. The work shed is where she can store her equipment and wood. Jenny and Clare then had to buy the woodworking tools such as saws, sanders and clamps. and all the equipment cost was $2,500. Added to this, they created a website to sell their boards and the monthly charge for the website is $35. To be on the safe side, they also bought insurance for $15 a month in case someone broke in and stole their tools.
They found that they could sell their cheese boards and cutting boards for $100 each. The wood would cost $40 and supplies to make each board was going to cost $10.
Another option was to go bigger and make coffee tables and desks. The workshop they were considering by Jenny's parents would be too small, so they thought about a place that is a shared wood shop, 'Creative Work Space', a wood shop, has all the equipment already there and they rent out the space for people to come in to use their equipment to make their products. The rent at 'Creative Work Space', is $6,000 a year. The benefit here is that they would not need to buy any equipment and the insurance was included in the rent. They still needed to create a website and the monthly charge for the website is $35.
With bigger projects like tables and desks, they needed larger pieces of wood. Now the wood would cost $80 dollars for each project but they could sell each table or desk for $300. The supplies were not provided by 'Creative Work Space' so they would have a cost of $20 for the supplies for each desk or table they made.
Considering the details provided:
a) Describe what is the purpose of break-even analysis and what is the formula
b) Calculate the break-even point for the cheese and cutting board side of the business
c) Calculate the break-even point for the coffee table and desk option of the business
d) Based on the two calculations, provide your reasons on which option is better for Jenny and Clare
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