The Clean Clothes Corner Laundry When Molly Lai purchased the Clean Clothes Corner Laundry, she thought that because it was in a good location near several high-income neighbourhoods, she would automatically generate good business if she improved the laundry's physical appearance. Thus, she initially invested a lot of her cash reserves in remodelling the exterior and interior of the laundry. However, she just about broke even in the year following her acquisition of the laundry, which she didn't feel was a sufficient return, given how hard she had worked. Molly didn't realize that the dry-cleaning business is very competitive and that success is based more on price and quality service, including quickness of service, than on the laundry's appearance. In order to improve her service, Molly is considering purchasing new dry-cleaning equipment, including a pressing machine that could substantially increase the speed at which she can dry-clean clothes and improve their appearance. The new machinery costs Php202,500 installed and can clean 40 clothes items per hour (or 320 items per day). Molly estimates her variable costs to be Php6.25 per item dry-cleaned, which will not change if she purchases the new equipment. Her current fixed costs are Php42,500 per month. She charges Php27.50 per clothing item. A. What is Molly's current monthly volume? B. If Molly purchases the new equipment, how many additional items will she have to dry-clean each month to break even? C. Molly estimates that with the new equipment she can increase her volume to 4,300 items per month. What monthly profit would she realize with that level of business during the next 3 years? After 3 years? D. Molly believes that if she doesn't buy the new equipment but lowers her price to Php24.75 per item, she will increase her business volume. If she lowers her price, what will her new break-even volume be? If her price reduction results in a monthly volume of 3,800 items, what will her monthly profit be? E. Molly estimates that if she purchases the new equipment and lowers her price to Php24.75 per item, her volume will increase to about 4,700 units per month. Based on the local market, that is the largest volume she can realistically expect. What should Molly do?

The Clean Clothes Corner Laundry When Molly Lai purchased the Clean Clothes Corner Laundry, she thought that because it was in a good location near several high-income neighbourhoods, she would automatically generate good business if she improved the laundry's physical appearance. Thus, she initially invested a lot of her cash reserves in remodelling the exterior and interior of the laundry. However, she just about broke even in the year following her acquisition of the laundry, which she didn't feel was a sufficient return, given how hard she had worked. Molly didn't realize that the dry-cleaning business is very competitive and that success is based more on price and quality service, including quickness of service, than on the laundry's appearance. In order to improve her service, Molly is considering purchasing new dry-cleaning equipment, including a pressing machine that could substantially increase the speed at which she can dry-clean clothes and improve their appearance. The new machinery costs Php202,500 installed and can clean 40 clothes items per hour (or 320 items per day). Molly estimates her variable costs to be Php6.25 per item dry-cleaned, which will not change if she purchases the new equipment. Her current fixed costs are Php42,500 per month. She charges Php27.50 per clothing item. A. What is Molly's current monthly volume? B. If Molly purchases the new equipment, how many additional items will she have to dry-clean each month to break even? C. Molly estimates that with the new equipment she can increase her volume to 4,300 items per month. What monthly profit would she realize with that level of business during the next 3 years? After 3 years? D. Molly believes that if she doesn't buy the new equipment but lowers her price to Php24.75 per item, she will increase her business volume. If she lowers her price, what will her new break-even volume be? If her price reduction results in a monthly volume of 3,800 items, what will her monthly profit be? E. Molly estimates that if she purchases the new equipment and lowers her price to Php24.75 per item, her volume will increase to about 4,700 units per month. Based on the local market, that is the largest volume she can realistically expect. What should Molly do?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 17E

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