Question

How Many Days of Hire are Needed to Break Even this Year?

- Company Operational Fixed Cost:

Salaries - $1.2 million

Office/Structure - $600,000

Misc - $700,000

- Debt Fixed Cost (Debt servicing & Insurance Coverage) :

$11,000/day based on one year deb service

- Variable Costs (Food/Gas) :

$1,500 per day

- $22,000 daily rate (market decides that rate)

Answer 1

Days of Hire required to achive Break even = Total Annual Fixed Cost/ Daily Contribution Margin.

Calculation of Total Annual Fixed Cost
salaries	$1,200,000
Office expenes	$600,000
Misc Expenses	$700,000
Debt fixed cost($11000*365)	$4,015,000
Total annual fixed cost	$6,515,000

Calulation Of daily contribution Margin
Daily Hire rate	$22,000
Less-Variable cost	$1,500
Contribution margin per day	$20,500

Days of Hire required to achive Break even = $6,515,000/$20500 = 317.80 days or 318 days.

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Proof

Income statement at 318 days of hire
	Income from Hire($22000*318 days)	$6,996,000
Less-	Variable cost($1500*318 days)	$477,000
	Contribution margin	$6,519,000
Less-	Fixed Costs	$6,515,000
	Net income	$4,000

Income statement at 317 days of hire
	Income from Hire($22000*317 days)	$6,974,000
Less-	Variable cost($1500*317 days)	$475,500
	Contribution margin	$6,498,500
Less-	Fixed Costs	$6,515,000
	Net income(loss)	-$16,500

As we can see in case of 318 days of hire there is a nominal profit of $4000.

And in case of 317 days of hire there is a Loss of $16500.

Hence to achive the breakeven point, total days of hire need to be 318 days in a year.