Essay-Guru Only Others Don't Even Ask

The Clean Clothes Corner Laundry

When Molly Lai purchased the Clean Clothes Corner Laundry, she thought that because it

was in a good location near several high-income neighborhoods, she would automatically

generate good business if she improved the laundry’s physical appearance. Thus, she

initially invested a lot of her cash reserves in remodeling the exterior and interior of the

laundry. However, she just about broke even in the year following her acquisition of the

laundry, which she didn’t feel was a sufficient return, given how hard she had worked. Molly

didn’t realize that the dry-cleaning business is very competitive and that success is based

more on price and quality service, including quickness of service, than on the laundry’s

appearance.

In order to improve her service, Molly is considering purchasing new dry-cleaning

equipment, including a pressing machine that could substantially increase the speed at

which she can dry-clean clothes and improve their appearance. The new machinery costs

$16,200 installed and can clean 40 clothes items per hour (or 320 items per day). Molly

estimates her variable costs to be $0.25 per item dry-cleaned, which will not change if she

purchases the new equipment. Her current fixed costs are $1 ,700 per month. She charges

customers $1 .1 0 per clothing item.

A.​ ​What is Molly’s current monthly volume?

B.​ ​If Molly purchases the new equipment, how many additional items will she have to dry-clean each month to break even?

C.​ ​Molly estimates that with the new equipment she can increase her volume to 4,300 items per month. What monthly profit would she realize with that level of business during

the next 3 years? After 3 years?

D.​ ​Molly believes that if she doesn’t buy the new equipment but lowers her price to $0.99 per item, she will increase her business volume. If she lowers her price, what will her new

break-even volume be? If her price reduction results in a monthly volume of 3,800 items,

what will her monthly profit be?

E.​ ​Molly estimates that if she purchases the new equipment and lowers her price to $0.99 per item, her volume will increase to about 4,700 units per month. Based on the local

market, that is the largest volume she can realistically expect. What should Molly do?

Be careful to when determining the following:

● Constraints ● Variables ● Assumptions