Using Variable costing to make Business Decisions: John 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: Sales revenue $60,000 Less all variable cost 20,000 Less all fixed 40,000 Net income $ 0 Clean Machines performed 500 car washes during the year.
a. How many car washes will Clean machines need to do in order to earn John's target profit of $40,000?
b. If John thinks that that number of car washes is an unrealistically high goal, what else could he do to achieve his targe profit?
c. John is considering raising the price of a car wash to $130. However, he aticipates 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?
