Ram Dubey recently purchased a chain of dry cleaners in North Uttar Pradesh. Although the business is making a modest profit now, Ram 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. Ram estimates that with the new press, it will cost $ 0.25 to launder and press each shirt, customers are charged $ 1.10 per shirt. Q1) How many shirts will Ram have to press to break even?
Q2) So far Ram’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?
Q3) If Ram 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?
Q4) Should Ram cut his price and buy the new press?
Q1) break even over what time period? He'll never press enough shirts to pay it off in one day.
Q2) revenue must cover cost. So, if he presses x shirts,
1.10x = 15400 + .25x
x = 18,118
So, if he presses 50 shirts/day, it will take 362 days.
Less if he can press more.
Q3) refigure the number of shirts, and hence the time period.
To calculate the break-even point and determine whether Ram should buy the new press, we need to consider the expenses and revenue generated by the dry cleaning business.
Q1) To calculate the break-even point, we need to determine the number of shirts Ram will have to press to cover the cost of the new press.
- Cost of new press: $15,400
- Cost per shirt: $0.25
- Revenue per shirt: $1.10
Break-even point = Cost of new press / (Revenue per shirt - Cost per shirt)
Break-even point = $15,400 / ($1.10 - $0.25)
Q2) To calculate how long it would take to break even at the low and high demand estimates, we need to consider the daily workload.
- Low demand estimate: 50 shirts per day
- High demand estimate: 200 shirts per day
Time to break even at low demand = Break-even point / Low demand estimate
Time to break even at high demand = Break-even point / High demand estimate
Q3) To calculate how long it would take to break even at the reduced price of $0.99, we need to consider the stabilized customer base of 250 shirts per day.
Time to break even at reduced price = Break-even point / (Revenue per shirt - Reduced cost per shirt)
Time to break even at reduced price = $15,400 / ($1.10 - $0.99)
Q4) To determine whether Ram should cut his price and buy the new press, we need to compare the time to break even at the reduced price with the time to break even at the current price. If the time to break even at the reduced price is shorter, it may be advantageous for Ram to cut the price and invest in the new press.
By plugging in the respective values into the above equations, we can find the answers to each question.