Using Variable Costing to Make Business Decisions .
John Chang is president of Clean Machines, a new car washing service that makes house calls. John has decided that his goal for the coming year is to earn a profit of $40,000. Clean Machines reported the following sales and cost information 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 Machines performed 500 car washes during the year.
Required
A. How many care washes will Clean Machines need to do in order to earn John's target profit of $40,000?
B. If John thinks the number of car washes is an unrealistically high goal, what else could he do to achieve his target profit?
C. John is considering raising the price of a car wash to $130. However, he anticipates that if he raises the price, demand will fall and he will perform 450 car washes. What will his net income be if this occurs? What do you think John should do?