Join Jim Stice for an in-depth discussion in this video Pricing a service to cover costs, part of Breakeven and Cost-Volume-Profit (CVP) Analysis.
- View Offline
- Now, let's do an example with numbers.…Let's get into the landscaping and yard care business.…We are going to determine our costs for just one…of our landscaping crews.…We will need equipment, and individuals to work for us.…For the equipment, we will need a truck to haul equipment…and people, and then we will need lawnmowers,…lawn edgers, weed eaters and the like.…Our workers will consist of a supervisor who runs the crew…and then the crew itself.…Since our yard care business is in a college town,…we've able to obtain workers as we have jobs,…thus our workers will be a variable cost.…
Our use of workers will vary depending on…the number of jobs we have.…In contrast, the cost of our supervisor will be a fixed cost…as we will be required to pay that individual regardless…of the number of jobs we have.…Now, let's attach numbers to these costs.…Our old truck costs $15,000 and is expected to last…only 5 years; it's going to take a bit of abuse.…Our mowers, edgers and such cost us $1496…and we expect to have to repurchase these items each year.…
Want to learn more? Learn about three types of accounting—financial, managerial, and income tax—in their Accounting Fundamentals course.
- Breaking down fixed and variable costs
- Pricing a service to cover costs
- Identifying high contribution margins
- Calculating a company's breakeven point
- Conducting breakeven analysis with breakeven equations
- Computing target net income
- Exploring sensitivity analysis