Question

$100 for a house taking four hours of cleaning, her standard product offering. she cleans, she uses $5 in variable supplies such as cleaning fluids and pape has fixed costs of an accountant, a van, a vacuum cleaner, and sundry items a $25,000 per year. 5. CVP ANALYSIS. Angie's Cleaning Service does routine cleaning or nouses REQUIRED: a. Develop Angie's cost formula for cleaning houses b. What is Angie's breakeven point in number of houses cleaned per year? c. What is the revenue dollars for Angie's breakeven point? d. A ngie wants to make $50,000 a year in before-tax profits. How many houses does she have to clean now? e. Angie wants to make $50,000 a year in after-tax profits. Now how many houses does she have to clean? She pays 25% in taxes on average. f. Angie is considering adding a second person to her company. It would cost her $50 per house for labor, but she could increase the number of houses cleaned per week from her current 12 to 22. Should Angie hire this worker? Why or why not? Develop a brief business case to explain your conclusions.

Answer 1

Solution:

Part a – Cost formula for cleaning houses

Total Cost = Variable Cost x Number of Houses + Fixed Cost

Total Cost = $5 Number of Houses + $25,000

Part b – Break Even Point in number of houses cleaned per year

Contribution Margin per house = Revenue $100 – Variable Cost $5 = $95

Total Fixed Cost = $25,000

Break even point in number of houses = Total Fixed Costs $25,000 / Contribution Margin per hour $95

= 263.158 Houses or 263 Houses

Part c – Revenue dollar for breakeven point = Number of houses 263 x Revenue 100 = $26,300

Part d –

Number of Houses have to clean now = (Total Fixed Cost $25,000 + Desired before tax profit $50,000) / Contribution Margin per unit $95

= 75,000 / 95

= 789.474 houses or 790 houses

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