Asked by Nicole Mowatt on Jul 09, 2024
Verified
A firm is considering adding a second secretary to answer phone calls and make appointments. The cost of the secretary will be $10/hour and she will work 200 hours each month. If each new client adds $400 of profit to the firm, how many clients must the secretary arrange for the firm to break even? Suppose that the secretary has an equal chance of providing either 0, 2, or 6 new clients each month. Should the firm hire the secretary?
Break Even
The point at which total revenues equal total costs, resulting in no profit or loss.
Variable Costs
Costs that change in direct proportion to the level of production or business activity.
Profit
The financial gain or return derived from an investment, transaction, or operation after subtracting all costs, expenses, and taxes.
- Understand the concept of breakeven analysis and its application in business decisions.
- Compute and understand the impact of fixed and variable costs on profit.
Verified Answer
NH
Nathaniel husadaJul 10, 2024
Final Answer :
BEP = 10(200)/(400) = 5 clients per month
EMV= .33(0∗400) +.33(2∗400) + .33(6∗400) = $1056. Since EMV is less than the $2000 the secretary costs, the firm should not hire.
EMV= .33(0∗400) +.33(2∗400) + .33(6∗400) = $1056. Since EMV is less than the $2000 the secretary costs, the firm should not hire.
Learning Objectives
- Understand the concept of breakeven analysis and its application in business decisions.
- Compute and understand the impact of fixed and variable costs on profit.
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