Melanie\'s Painting provides painting services for residential and commercial cu
ID: 2527654 • Letter: M
Question
Melanie's Painting provides painting services for residential and commercial customers five days per week (Monday through Friday). Due to growing demand, the company owner, is considering staying open on Saturday. If the company stays open on Saturday, it can generate $2,100 of daily revenue and will operate for 48 extra days per year. The incremental daily costs will be $700 for labor (including over-time pay), $200 for paint, brushes, and supplies, $50 for transportation, and $100 for office staff. These costs do not include allocations of monthly rent or depreciation on non-service related equipment amounting to $150 per operating day. Melanie anticipates having to add a part-time supervisor position at an annual cost of $37,000 if it opens on Saturday. Provide a detailed estimate of the incremental profit for the year if Saturday operations are commenced. All questions pertain to the analysis of Saturday operations. Answers What is the amount of revenue attributable to the Saturday operations? Calculate the estimated annual variable costs for the Saturday operations. Determine the amount of any other relevant cost(s). Based on your above calculations determine the annual profit. Based on the above calculations what would be the expected annual profit if revenues are 10% less than expected and variable costs are 10% greater than expected?Explanation / Answer
Solution:
1. Revenue attributable to saturday operations = $2100 * 48 = $100,800
2. Estimated annual variable cost for saturday operation = ($700 + $200 + $50 + $100) * 48 = $50,400
3. Other relevant cost = Annual cost of part time supervisor = $37,000
4. Annual profit = $100,800 - $50,400 - $37,000 = $13,400
5. Revised revenue = $100,800 * 90% = $90,720
Revised variable cost = $50,400 *110% = $55,440
Expected annual profit = $90,720 - $55,440 - $37,000 = -$1,720