Price Setting question, please help!

Question

I answered a through e, but I do need help with f. Could someone please help me answer this?

 

4. Suppose you were considering going into the car-wash business and investing in a new kind of car-washing unit which is more mechanized than the usual ones—but also has higher fixed costs. Calculate the break-even point in dollars and units if the usual price of $4 per car were charged. The variable cost per car is estimated at $2. The total fixed cost per year (including depreciation, interest, taxes, fixed labor costs, and other fixed costs) is estimated at $320,000.

a. Break-even Point in $ _________640,000_________________


b. Break-even Point in units___________160,000_____________

c. Calculate the break-even points (in $ and units) if the retail price of car wash drops to $3.50 per car due to competition in the future.

d. Break-even point in $ ____________746,666.67_______________

e. Break-even point in units ___________213,333.33_____________

f. Should you go into the car-wash business in any of the above situations? Explain.

Answer 1

No! You would need to do 438 car washes per day (365 days per year) just to break even in the first scenario. You would need to do 639 per day in the second scenario. Not gonna happen! Even if you doubled the price, it's highly unlikely that you would make a profit.