As a business we charge our engineers out on an hourly basis for breakdowns etc, and what I want to determine is what is the lowest we can afford to charge them out for, at what point do we break even.
And so I'm hoping someone can help me add a bit of clarity to this.
What I have been looking at is dividing the fixed overhead between the number of hours worked.
So for example if the fixed overhead is £100,000 per month and we have twenty engineers each working 40 hours per week in a 4 week month, then this would give us £31.25 per hour.
Then if we divided the indirect labour wage bill between the hours worked to obtain the average wage, and added this to the £31.25 we would have the break even point? so if the average wage was £10ph we would end up with a break even point of £41.25 per hour.
Have I got this right or am I getting it completely wrong?
So by my reckoning the more billable hours worked the lower the break-even point and the higher the profit in theory?
If a product sells for £100 Has variable costs of £30 ea unit Total fixed costs of £40000. The break even point is just enough to cover the total fixed costs of £40000. We need contribution of £40000. Each unit provides £70 contribution. (sales less variables) So break even in units is £40000 / £70 = units needed. Sales revenue needed to break even would then be, units X £100
-- Edited by abacus12345 on Thursday 18th of February 2016 07:51:21 PM
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
In your example Mark, what is it that you sell either per unit or per hour?
For instance,
£100,000 Fixed costs
£500 boiler repair (Which you supply)
£200 Costs to you
Would mean to break even you'd need to repair - 100000 / 300 = 333.33 Boilers to break even. Or in sales revenue 333.33 X £500 = £166,665 Sales revenue
So in answer to your question, your numbers are correct. Assuming you've accounted for employers NI etc
-- Edited by abacus12345 on Thursday 18th of February 2016 08:39:51 PM
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Johnny - Owner of an overly-active keyboard.
A man who can read, yet doesn't, is in no way wiser than a man who can't.
Thanks for your reply, what we sell is labour at an hourly rate, so for example one of our clients has a repair on their equipment that requires an engineer to attend and we attend, and charge them per hour for our attendance.
And so what I have been trying to determine is at what point we break even, so that we can look at our pricing structure to make sure that we are not underselling our labour and making profit from the equipment sales which are used as part of the repairs.
