Break even question! Please help! Thank You!

timer Asked: Oct 11th, 2013
account_balance_wallet $5

Question Description

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?

Tutor Answer

School: Cornell University

answer 1) net profit per shirt =1.10-.25=.85$
total profit on 320 shirts in one day=.85x320=272$
for break even he needs to earn 15400,hence no of days taken =15400/272= 56.61 days ,hence shirts pressed =320x56.61
=18118 shirts
answer 2)at low demand of 50 /day he will earn 50x.85=42.5$ per day,break even=15400/42.5=362.35 or take 363 days for break even
at high demand of 200 per day he will earn 200x.85=170$per day ,break even =15400/170=90.5 or take 91 days for break even
answer 3)cutting price to .99 $ a shirt he will get net profit=.99-.25=.74$per shirt
total earning per day=.74x250=185$ hence time taken for break even=15400/185= 83.24 or take 84 days for break even
answer 4) yes he should

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