Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • The Clean Clothes Corner Laundry

    Uploaded by

    VIKRAM KUMAR
    41 views3 pages
    Molly Lai owns the Clean Clothes Corner Laundry and initially focused on improving the exterior appearance of the business. However, after the first year of barely breaking even, she realized success depended more on price and quality of service. Molly is now considering options to improve profits, including purchasing new equipment. The equipment would increase cleaning speeds and output without raising variable costs. However, it would also increase fixed costs temporarily. Molly needs to determine if the equipment purchase and lowering prices would allow her to break even and increase volume enough to generate a profit.

    Original Description:

    Original Title

    11OCTCCC

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    Molly Lai owns the Clean Clothes Corner Laundry and initially focused on improving the exterior appearance of the business. However, after the first year of barely breaking even, she realized success depended more on price and quality of service. Molly is now considering options to improve profits, including purchasing new equipment. The equipment would increase cleaning speeds and output without raising variable costs. However, it would also increase fixed costs temporarily. Molly needs to determine if the equipment purchase and lowering prices would allow her to break even and increase volume enough to generate a profit.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    41 views3 pages

    The Clean Clothes Corner Laundry

    Uploaded by

    VIKRAM KUMAR
    Molly Lai owns the Clean Clothes Corner Laundry and initially focused on improving the exterior appearance of the business. However, after the first year of barely breaking even, she realized success depended more on price and quality of service. Molly is now considering options to improve profits, including purchasing new equipment. The equipment would increase cleaning speeds and output without raising variable costs. However, it would also increase fixed costs temporarily. Molly needs to determine if the equipment purchase and lowering prices would allow her to break even and increase volume enough to generate a profit.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 3

    The Clean Clothes Corner Laundry

    With the purchase of the Clean Clothes Corner Laundry, owner, Molly Lai initially focused her

    efforts and cash reserves to improve the physical appearance of the business. The business was in

    an excellent location near high-income neighborhoods, and she expected a generation of good

    business with the improvements to the interior and exterior of the laundry. After barely breaking

    even at the end of the first year, Molly quickly realized that she underestimated the

    competitiveness of the dry-cleaning business. She also learned that the success of the business

    depended on price and quality of service more than the appearance.

    As Molly formulated a plan to improve her dry-cleaning business, she explored several different

    options that would yield the type of return she initially expected for the work she put in her

    business. The purchase of new equipment was one the options she was considering. Purchasing

    new equipment would be costly and require a temporary increase in her fixed costs but would

    also increase the speed of the time it takes to dry clothes and also improve the appearance of the

    clothes. Molly knew she could increase the number of items she cleaned per hour without

    increasing her variable costs. Molly also considered the option of lowering her price but was

    unsure if it would allow her to break-even and how it will affect her volume.

    Insert section for (Problem A and B)

    1. What is Molly’s current monthly volume?

    Molly’s fixed costs = $1,700 per month

    Variable costs are $0.25 per item

    Cost per item is $1.10

    Hence, the current monthly volume = $1,700 ÷ (1.1 – $0.25) = 2000


    Molly’s current monthly volume is 2,000 items.

    Answer:

    Molly made the massive investment in the exteriors of the Clean Clothes Corner Laundry

    instead of focusing on equipment that could increase the efficiency of the laundry. In the given

    scenario with the given fixed expenses of $1,700 per month and revenue of $1.10 per item with a

    variable cost of $0.25 per item, Molly will require cleaning more than 2,000 items in a month. In

    other words, Molly should clean more than 2,000 items to break-even the cost. Any item above

    2,000 will be her profit. Therefore, Molly should focus on cleaning more than 2,000 clothes

    every month to generate profit from her business. Anything below 2,000 items will result in a

    loss to Molly.

    2. If Molly purchases the new equipment, how many additional items will she have to dry-clean

    each month to break even?

    Based on question C, the $16,200 in new machinery will be spread up over 36 months. This will

    add $450 per month to her fixed costs making it total to $2,150 per month. Hence, she would

    need to clean the following additional items per month to break even.

    = $2,150 ÷ (1.1 – $0.25) – 2000

    = 529.412

    Molly would need to clean an additional 529 items a month in order to break even.

    Answer:

    Molly is not satisfied with the revenue generated from her current laundry business, and

    she is keen to boost her profitability from the business. Molly has an opportunity to improve the

    efficiency of business by investing $16,200 in new equipment. But the investment will increase
    the fixed cost from $1,700 to $2,150. When there is an increase in the cost, there is a requirement

    for Molly to clean more items to break-even. If Molly is purchasing the equipment, she should

    clean more than 2,529 items that are 529 items more than the existing 2,000 items to break-even.

    Purchase of equipment will increase the efficiency of her business which is essential, but at the

    same time, she should clean more than 2,529 items to generate profit. Purchasing equipment will

    require her to clean more items to generate profit.

    Insert section for (Problem C)

    Insert section for (Problem D)

    Insert section for (Problem E)

    You might also like