Question: John Chang is president of Clean Equipments, a new car washing service that makes house calls. John has decided that his goal for the coming year is to earn profit of $40,000. Clean Equipments reported the following sales & cost data for the year just ended:
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Sales revenue
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$60,000
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Less all variable costs
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20,000
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Less all fixed costs
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40,000
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___________
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Net income
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$0
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___________
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___________
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Clean Equipments performed 500 car washes during the year.
Required;
[1] Find how many care washes will Clean Equipments require to do in order to earn John's target profit of $40,000?
[2] If John thinks the number of car washes is an unrealistically high goal, what else could he do to achieve his target profit?
[3] John is considering increasing the price of a car wash to $130. However, he anticipates that if he raises the value, demand will fall & he will perform 450 car washes. Determine his net income if this occurs? What do you think John should do?