Skill Building exercise 6A is an exercise (page 220) on the Pert Chart. This is one of the more common and useful tools used in business. Without prior exposure, the first time most people see it they will need some clarification to understand all that it represents. While business and managers use many tools, one of the most common and useful is the Pert Chart. Build the Pert Chart described in your textbook and attach it to this assignment along with the answers to the two questions in the Break Even analysis based on the problem as outlined below.
Break Even Analysis:
On a recent vacation trip to Juarez, Mexico, you noticed a small store and street vendors selling original art. The prices ranged from $3 to $25 U.S. A flash of inspiration hit you, why not sell Mexican art back home in the U.S. using a van as your store? Every three months you could drive the 350 miles to Mexico and load up on art. You anticipate that you could negotiate generous large-quantity discounts from the Mexican vendors.
Back in the U.S., you could park your van on busy streets or nearby parks, wherever you could obtain a permit. You think the only advertising needed would be to display the art outside the van. Your intention is to operate your traveling art sale about 12 hours per week. If you can make enough money from your business, you could attend classes full time during the day.
You intend to sell the original painting at an average of $15 a unit. Based on preliminary analysis, you have discovered that your primary fixed costs per month would be: $500 for payment on a van, $125 for gas and maintenance, $50 for insurance, and $45 for a street vendor’s permit. You will also be driving to Mexico every three months at $400 per trip, resulting in a $133.33 per month travel cost. Your variable costs would be an average of $5 per painting and 45 cents for wrapping each painting in brown paper.
Question 1: How many paintings will you have to sell each month before you start to make a profit?
Question 2: If the average cost of your paintings rises to $8, how many pieces of art will you have to sell each month if you hold your price to $15 per unit?