Business Game
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Fantastic Cleaning Co is evaluating two options for their cleaning service business: renting cleaning machines or operating without machines. Both options have a breakeven point of 1000 cleaning services per month. Renting machines has higher contribution margin per service but also has monthly machine rental costs. The company is also considering partnering with an online marketplace and competing offers from other cleaning companies.
Business Game
- 2. Fantastic Cleaning Co. 15 Employees - AED 8/hour (Maximum 40 hours a week) Option1 Option2 (Rent Machines) (without Machines) Cost per cleaning Service (2 Hours) Direct Materials AED2 AED 12 Direct Labor = 8 AED/hour X 2 Hours AED 16 AED 16 Variable OH AED 2 AED 3 Variable Selling Cost AED 5 AED 9 Monthly Fixed Cost AED 10,000 AED 10,000 Machine Rent Cost AED 15,000 AED 0 Selling Price AED 70 AED 70 Variable Cost AED 25 AED 40 Contribution Margin AED 45 AED 30
- 3. Option1 (Rent Cleaning Machines) Direct Materials = AED 2 Selling Price = AED 70 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Variable Cost = AED 25 Variable OH = AED 2 Contribution Margin = AED 45 Selling Cost = AED 5 Fixed Cost = AED 10,000 Machine Rent Cost = AED 15,000/ month Breakeven (Profit Required = AED 20,000) Sales = VC + FC + Required Profit 70 X Cleaning Services = 25 X Cleaning Services + 25,000 + 20,000 45 X Cleaning Services = 45,000 Cleaning Services = 1000
- 4. Option2 (without Cleaning Machines) Direct Materials = AED 12 Selling Price = AED 70 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Variable Cost = AED 40 Variable OH = AED 3 Contribution Margin = AED 30 Selling Cost = AED 9 Fixed Cost = AED 10,000 Machine Rent Cost = 0 Breakeven (Profit Required = AED 20,000) Sales = VC + FC + Required Profit 70 X Cleaning Services = 40 X Cleaning Services + 10,000 + 20,000 30 X Cleaning Services = 30,000 Cleaning Services = 1000
- 5. Option1 (Rent Cleaning Machines) Option2 (without Cleaning Machines) Direct Materials = AED 2 Direct Materials = AED 12 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Variable OH = AED 2 Variable OH = AED 3 Selling Cost = AED 5 Selling Cost = AED 9 Fixed Cost = AED 10,000 Fixed Cost = AED 10,000 Machine Rent Cost = AED 15,000/ month Machine Rent Cost = AED 0 Breakeven - Cleaning Services = 1000 Breakeven - Cleaning Services = 1000
- 6. + AED 11,000 Month2: # of Cleaning Services = Option1 (Rent Cleaning Machines) Option2 (without Cleaning Machines) Direct Materials = AED 2 Direct Materials = AED 12 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Variable OH = AED 2 Variable OH = AED 3 Selling Cost = AED 5 Selling Cost = AED 9 Monthly Fixed Cost = AED 10,000 Monthly Fixed Cost = AED 10,000 Machine Rent Cost = AED 15,000/ month Machine Rent Cost = AED 0 Selling Price = AED 70 Selling Price = AED 70 Variable Cost = AED 25 Variable Cost = AED 40 Contribution Margin = AED 45 Contribution Margin = AED 30 Profit = (45 X 800) – 25,000 = AED 11,000 Profit = (30 X 800) – 10,000 = AED 14,000
- 7. + AED 11,000 + AED 31,250 Month2: # of Cleaning Services = Option1 (Rent Cleaning Machines) Option2 (without Cleaning Machines) Direct Materials = AED 2 Direct Materials = AED 12 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Direct Labor = 8 AED/hour X 2 Hours = AED 16 Variable OH = AED 2 Variable OH = AED 3 Selling Cost = AED 5 Selling Cost = AED 9 Monthly Fixed Cost = AED 10,000 Monthly Fixed Cost = AED 10,000 Machine Rent Cost = AED 15,000/ month Machine Rent Cost = AED 0 Selling Price = AED 70 Selling Price = AED 70 Variable Cost = AED 25 Variable Cost = AED 40 Contribution Margin = AED 45 Contribution Margin = AED 30 Profit = (45 X 1250) – 25,000 = AED 31,250 Profit = (30 X 1250) – 10,000 = AED 27,500
- 8. + AED 11,000 + AED 31,250 + AED 1,400 .com Option1 (Rent Machines) Option2 (without Machines) Direct Materials = AED 2 Direct Materials = AED 12 Direct Labor = AED 16 Direct Labor = AED 16 Variable OH = AED 2 Variable OH = AED 3 Selling Cost = AED 5 Selling Cost = AED 9 Selling Price = AED 70 Selling Price = AED 70 Variable Cost = AED 25 Variable Cost = AED 40 Contribution Margin = AED 45 Contribution Margin = AED 30 Commission Rate (25%) Commission Rate (25%) Minimum Price = Minimum Price = Price 38 = Profit (1,200 to 1,400) Price 38 = Loss Price 43 = Profit (1,100 to 1,600) Price 43 = Profit (600 - 1,000) Price 46 = Profit (800 to 1800) Price 46 = Profit (400 – 1400)
- 9. + AED 11,000 + AED 31,250 + AED 1,400 .com Option1 (Rent Machines) Option2 (without Machines) Direct Materials = AED 2 Direct Materials = AED 12 Direct Labor = AED 16 Direct Labor = AED 16 Variable OH = AED 2 Variable OH = AED 3 Selling Cost = AED 5 Selling Cost = AED 9 Selling Price = AED 70 Selling Price = AED 70 Variable Cost = AED 25 Variable Cost = AED 40 Contribution Margin = AED 45 Contribution Margin = AED 30 Commission Rate (25%) Commission Rate (25%) Minimum Price = Minimum Price = Price 38 = Profit 1,300 Price 38 = Loss Price 43 = Profit 1,400 Price 43 = Profit 900 Price 46 = Profit 900 Price 46 = Profit 1,300
- 10. + AED 11,000 + AED 31,250 + AED 1,400 + 800 Direct Materials Saving for Bulk order AED 1500 Other Fantastic Cleaning Cleaning Co. Company
- 11. + AED 11,000 + AED 31,250 + AED 1,400 + 800 +? Advertising Strategy Other Cleaning Company AED 5,500 AED 6,250 Fantastic Cleaning Co. AED 6,500 AED 5,250
- 12. + AED 11,000 + AED 31,250 + AED 1,400 + 800 +? Fantastic Cleaning Co. Total Profit =