Break-Even Narrative
There is also something to be said for the margins and other metrics that reveal themselves as a result of the work done on this assignment. Essentially, Tiffany has a model that could work but there must be some adjustments made. While Tiffany could break a profit with the overall money flow she has going on, she will either need to improve her margins or greatly raise her production if she wishes to live with a six-figure income after all expenses are paid.
Based on the analysis and calculations done on the spreadsheet, a few things become clear. First, ramping up production is something that Tiffany will absolutely have to do, at a minimum, if she wants to have a six-figure salary given the other facts and expenses that are going on. Indeed, given her current expenditures, ramping up production would not be enough and lack of production is not why she's money. The fixed expenses are also rather high as they are six figures in terms of total number. Even so, they are a mere fraction of the overall costs and they rise proportionally when the production goes up. Tiffany either needs to raise the price she charges or she needs to drive down costs . . . one of the two. This is clear just when looking at the raw materials, travel cost, workshop cost, ad cost, Joe's salary and the skilled labor cost as compared to the sale cost per batch. At 1,000 batches, the loss is more than $400,000. The raw materials alone are eating up about two thirds of the production budget
Conclusion
To briefly synthesize and summarize the above, Tiffany would do well to ramp up production if she can. However, that will not fully address the issues that she has. Her margins are not good and the cost of materials is really the main reason why. That being said, she could glean more dollars back from other parts of the overall budget including labor and fixed expenses.
