When Molly Lai purchased the Clean Clothes Corner Laundry, she thought that she would automatically generate good business if she improved the laundry’s physical appearance because it was in a good location near several high-income neighborhoods. Thus, she initially invested a lot of her cash reserves in remodeling the exterior and interior of the laundry. However, she just about broke even in the year following her laundry acquisition, 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. Success is based more on price and quality service, including quick service, than on the laundry’s appearance. 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 ₱16,200 installed and can clean 40 clothes items per hour (or 320 items per day). Molly estimates her variable costs to be ₱0.25 per dry-cleaned item, which will not change if she purchases the new equipment. Her current fixed costs are ₱1,700 per month. She charges customers ₱1.10 per clothing item. Questions 1. What is Molly’s current monthly volume? 2. If Molly purchases the new equipment, how many additional items will she have to dry-clean each month to break even? Assuming that the new equipment would be paid in 36 months installment. 3. 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 three (3) years? a. After three (3) years?
When Molly Lai purchased the Clean Clothes Corner Laundry, she thought that she would automatically
generate good business if she improved the laundry’s physical appearance because it was in a good location
near several high-income neighborhoods. Thus, she initially invested a lot of her cash reserves in remodeling
the exterior and interior of the laundry. However, she just about broke even in the year following her laundry
acquisition, 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. Success is based more on price and quality service, including
quick service, than on the laundry’s appearance.
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 ₱16,200 installed and can clean 40 clothes items per hour (or 320 items
per day). Molly estimates her variable costs to be ₱0.25 per dry-cleaned item, which will not change if she
purchases the new equipment. Her current fixed costs are ₱1,700 per month. She charges customers ₱1.10
per clothing item.
Questions
1. What is Molly’s current monthly volume?
2. If Molly purchases the new equipment, how many additional items will she have to dry-clean each month
to break even? Assuming that the new equipment would be paid in 36 months installment.
3. 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 three (3) years?
a. After three (3) years?
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