Case 2: The driving instructor David is 24 years old, single and living at home. Currently he has a job with the local council as a clerk earning 335 per week but his ambition is to be a driving instructor with his own business rather than working for a large driving school. He knows a new dual control car will cost 16,000 and that he must first pass the advanced driving rest which, with tuition fees, will cost 1500. He also knows that large driving schools charge customers 20 per hour for tuition. Would his own business be viable? Before you do the calculations or look at our answer, take a moment to consider what your instinctive view is. David has already done some work to estimate the other costs involved. 1. Car running costs. An automobile association tells him that average running costs for the type of car he intends using are 30p per mile. Since his car will be working in low gears with heavy handling, he decides to check out the accuracy of this figure. 2. Advertising. As a one- man operation, David will probably use only the local press. This is relatively cheap, especially since full page spreads are unnecessary for this type of business. A one-eighth page is likely to cost approximately 100 per week. 3. Administrative costs. While David is instructing he clearly cannot answer the phone, hence he needs someone at base. Fortunately his mother has volunteered and is content with pay of 70 per week. At this level no tax or national insurance need be paid. Items such as stationery and, particularly, insurance, will cost another 30 per week. All these administrative costs add up to 100 per week. 4. Depreciation. The car will have to be replaced every two years (60,000 miles). Allowing for price increases and the trade-in value, a rough estimate of the replacement cost is 16000, or 160 per week. If it is assumed that David borrows the money for the advanced driving test and the initial purchase of the car from the bank at, pessimistically, 10 per cent, his borrowing cost is 1,800 approximately 40 per week. David proposes to work a 30 hour week and charge 18.00 per hour to undercut the large schools. He assumes that each lesson will cover about 20 miles, consistent with 30,000 miles per year (20 miles x 30 lessons per week x 50 weeks per year). What is his breakeven point in terms of one-hour lessons per week? What will be his profit or loss if he works 30 hours per week