P7-19B Using Variable Costing to Make Business Decisions
James Channing is president of BeClean!, a new car washing service that makes house calls. James has decided that his goal for the coming year is to earn a profit of $80,000. BeClean! reported the following sales and cost information for the year just ended:
Sales revenue 120,000
Less all variable costs 40,000
Less all fixed costs 80,000
Net income –
BeClean! performed 1,000 car washes during the year.
a. How many car washes will BeClean! need to do in order to earn James’ target profit of $80,000?
b. If James thinks that that number of car washes is an unrealistically high goal, what else could he do to achieve his target profit?
c. James 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 900 car washes. What will his net income be if this occurs? What do you think James should do?