Determine the fixed costs and break-even point

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Reference no: EM133083898

Question 1
Green Fingers are a landscaping company that contract both labour and equipment from a local construction company. The construction company have given green Fingers the following three capacity options:

Capacity	Labour Hours	Equipment Hours
High	9,000	6,000
Medium	6,750	4,500
Low	4,500	3,000

Labour costs €10 per hour whilst the hiring of equipment is €20 per hour.
Once a capacity option has been chosen it cannot be altered and the hours associated with each capacity option are fixed.
Green Fingers estimate that the average job has revenue of €2,000 and requires 30 hours of labour and 20 hours of equipment usage.

For 2021 Green Fingers have developed the following forecast:

Demand	No. of Jobs	Probability
High	300	30%
Medium	200	40%
Low	120	30%

You are required:
a) Determine the fixed costs and break-even point for each capacity option. What is the maximum number of jobs that can be handled under each capacity option?
b) Draw a decision table for Green Fingers and calculate the profit associated with each option.
c) Using the information from part b, which option would you advise Green Fingers to pursue to maximise profit?

Reference no: EM133083898

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