Imaad Dada

Report for possible architectural business

For Emily C.

Analyses of costs

Imaad Dada

Fixes costs:

Rent on office- $625 monthly = $7,500 annually

Software license - $2,475 annually
Insurance (general/workers comp)- $915 annually
Insurance ($1,695) - $1,695 annually
Purchases of office equipment - $1,400 annually
Telephone and internet fees - $145 monthly - $1015 annually
Research publications, continuing education, dues, and professional
licenses- $1,800 annually
General supplies (office supplies, coffee, etc) - $105 monthly, $1260
annually
Total fixed costs: $18,785

Variable costs:

Outside experts for engineering, technical, or surveying work 15% of

sales
Supplies for jobs (prints, report covers, etc) 2.25% of revenue
Bank fees for check and credit card processing 1.05% of sales
Total variable costs: 18.3% of sales

Break-even analysis
Break even (revenues): sales = $18,785 + 18.3% of sales
81.7% of sales = $18,785 (subtract 18.3% from each side)
81.7%/.817 = $18,785/.817 (divide each side by .817 to find out 100% of
sales)
100% of sales = $22,992.66
Revenue to break even = $22,992.66
Break even (units): $22,992.66/$95= 242.028 billable hours to break even,
(revenue/ rate charged per hour. However these are the hours that are billed,
if 1.25 hours are worked. 242.028 (1.25) = 302.535, these are the hours
worked for the billable hours. + 16(12 months) hours each year on business
development and networking, 40 hours per year on continuing education,

Imaad Dada

and 16(12 months) hours on general business needs. So the total hours that
needed to be devoted are 726.54 hours
$30,000 annual profit (revenues): Since 18.3% of sales are variable costs,
81.7% of the sales are profit(before fixed costs), which is .817. .817(sales) =
$30,000. Divide each side by .817, which leads the sales to be $36,719.71.
$18,785 must be added to the sales to even out the fixed costs. This equals
$55,504.71 in revenues to make $30,000 profit.
$30,000 annual profit (units): $55,504.71 of sales must be made to make
$30,000 profit. If each hour is billed for $95, divide $55,504.71 by $95 which
equals 584.26 hours, but again, these are billable hours. To find out the
actual hours of work needed, multiply 584.26 by 1.25 this equals 730.33.
16(12 months) hours per year for business development, 40 hours per year
on continuing education, and 16(12 months) hours per year for general
business needs are also necessary which bump up the hours necessary for
devotion to be 1154.33 hours.

Break-even analyses (lowered price):

Break even (revenues): sales = $18,785 + 18.3% of sales. Subtract 18.3% of
sales from each side to get 81.7% of sales = $18,785. Divide each side by .
817 (81.7%) to get $22,992.66.
Break even (units): Since $70/hour is the new revenue, divide $22,992.66
which equals 328.47 billable hours. Each billable hour needs to be multiplied
by 1.25 because thats how many hours are spent per billable hour, this
equals 410.59, another 16(12 months) hours annually for development and
networking, 40 hours for continuing education, and 16(12 months) hours
annually on general business needs also needs to be applied, making the
total hours needed to be dedicated to be 834.59 hours spend annually.
$30,000 annual profit (revenues): Since 18.3% of the revenues are variable
costs, 81.7% of the sales are profit (before fixed costs), which is .817. .
817(sales) =$30,000. Divide each side by .817 which leads the sales to be
$36,719.71. $18,785 must be added to the sales to even out the fixed costs.
This equals $55,504.71 in revenues to make $30,000 profit
$30,000 annual profit (units): $55,504.71 in revenues needs to be collected
to make $30,000 profit. Since each hour billed is going to be $70, divide
$55,504.71 by 70 which equal 792.92. These are just the billable hours,

Imaad Dada

however. To get the total hours dedicated, multiply by 1.25 because thats
how many hours are spent per billable hour. This equals 991.15. another
16(12 months) hours annually for development and networking, 40 hours for
continuing education, and 16(12 months) hours annually on general business
needs also needs to be applied, making the total hours needed to be
dedicated to be 1415.15 hours spent annually.

Summary:
This business seems quite successful at both billing rates, of course more
successful at $95/hour as the billing rate. Since a $70/hour billing rate is
being thought of so it has a more fair price, I will be discussing this more. A
fixed cost is a cost that remains the same per month/year or period of time,
not correlating with units produced. On the other hand, a variable cost is a
cost that is depicted by the units, in this case, the hours. Variable costs will
change depending on the change in the hours billed. The break-even point in
either case is the point which the costs = the income, which means no
money is lost or earned as profit. Its important because it tells you how
much revenue, and hours billed are necessary to make the costs = income. A
contribution margin is the sales the variable costs. This business seems like
a good business because even when working less than full time (which is
usually 2000 annual hours) a profit of $30,000 is still generated.