Problem:
David Smith recently purchased a chain of dry cleaners in western Wisconsin. Although the business is making a modest profit now, David suspects that if he invests in a new press, he could recognize a substantial increase in profits. The new press costs $15,400 to purchase and install and can press 40 shirts an hour (or 320 per day). David estimates that with the new press, it will cost $0.25 to launder and press each shirt. Customer are charged $1.10 per shirt.
Required:
Question 1) How many shirts will David have to press to break even?
Question 2) So far, David's workload has varied from 50 to 200 shirts a day. How long would it take to break even on the new press at the low-demand estimate? At the high-demand estimate?
Question 3) If David cuts his price to $0.99 a shirt, he expects to be able to stabilize his customer base at 250 shirts per day. How long would it take to break even at the reduced price of $0.99? Should David cut his price and buy the new press? Solve the problem and show all work.