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30 May, 03:56

Break-Even for a Service Firm Jonah Graham owns and operates The Green Thumb Company (GTC), which provides live plants and flower arrangements to professional offices. Jonah has fixed costs of $3,240 per month for office/greenhouse rent, advertising, and a delivery van. Variable costs for the plants, fertilizer, pots, and other supplies average $24 per job. GTC charges $60 per month for the average job. Required: 1. How many jobs must GTC average each month to break even

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  1. 30 May, 04:47
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    The company should provide, in average, 90 jobs per month in order to break even.

    Explanation:

    We will assume that the variable costs are proportional to the quantity and thus VC=a*Q

    the profit obtained is

    profit = P*Q, (Price [$/job] * Jobs sold [jobs])

    and the total costs are

    total costs = FC+VC = FC + a*Q, FC=fixed costs

    in order to break even the quantity sold should be enough to cover all costs, therefore

    profit = total costs

    P*Q = FC + a*Q → Q = FC / (P-a)

    thus

    Q = FC / (P-a) = $3240 / ($60/job - $24/job) = 90 jobs
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