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Managerial Accounting: Clean Machine target profit; how many car washes?

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 20,000
Less all fixed costs 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 number of car washes is an unrealistic high goal, what else could he do to achieve his target profit?
C. John is considering raising the price of a car washes 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?

Solution Summary

The solution analyzes the business Clean Machine and its target profits. How many car washes it must perform each year is determined.