Read You Be The Consultant: Where do we Break Even?

Anita Dawson is doing some financial planning for her small gift store. According to her budget for the upcoming year, Anita is expecting sales of $495,000. She estimates the cost of goods sold will be $337,000 and other variable expenses will total $42,750. Using the previous year as a guide, Anita anticipates fixed expenses of $78,100. Anita recalls a meeting she had recently with her accountant, who mentioned that her store already had passed its break-even point eight and a half months into the year. She was pleased but really didnt know how the accountant had come up with that calculation. Now Anita is considering expanding her store into a vacant building next door to her existing location and taking on three new product lines. The companys cost structure would change, adding another $66,000 to fixed costs and $22,400 to variable expenses. Anita believes the expansion could generate additional sales of $102,000 in the first year. She wonders what she should do.

1. Calculate Anita's Break-even Point without the expansion plans.
2. Compute the break-even point assuming that Anita decides to expand her business
3. Do you recommend that Anita Expand her business? Explain.