Asked by Andreas Frånlund on Jul 05, 2024
Verified
A local business owner is considering adding another employee to his staff in an effort to increase the number of hours the store is open per day.
a. If the employee will cost the owner $4,000 per month and the store takes in $50/hour in revenue with variable costs of $15/hour, how many hours must the new employee work for the owner to break even?
b. The employee again costs $4000 and has agreed to work 120 hours. If variable costs remain at $15/hour and revenue is uncertain with a 40% chance of being $40/hour, 35% chance of being $20/hour, and 25% chance of being $35/hour should the owner hire the employee?
Variable Costs
Expenses that vary in relation to the amount of work performed or quantity of products made, including labor and materials.
Break Even
The point at which total costs and total revenues are equal, resulting in no net loss or gain for a business.
- Comprehend the analysis of break-even for multiple products.
- Understand the fundamentals of break-even analysis and its constraints.
Verified Answer
HO
Hilula OkanulaJul 11, 2024
Final Answer :
A - BEP = 4000/(50 - 15) = 114.3 hours
B - EMV = .4(120∗(40 - 15)) + .35(120∗(20 - 15)) + .25(120∗(35 - 15)) = $2010. Since EMV is less than the $4000 cost of the employee the owner should not hire.
B - EMV = .4(120∗(40 - 15)) + .35(120∗(20 - 15)) + .25(120∗(35 - 15)) = $2010. Since EMV is less than the $4000 cost of the employee the owner should not hire.
Learning Objectives
- Comprehend the analysis of break-even for multiple products.
- Understand the fundamentals of break-even analysis and its constraints.