You own a pet grooming shop. Suppose you pay 20,000 dollars for your annual leas

Question

You own a pet grooming shop. Suppose you pay 20,000 dollars for your annual lease on Juanuary and thus you have the right to use the space in whatever way you like for the whole year. You rough out that you expect to sell 2,000 groomings and will pay your workers 20 dollars per session. Your expected average cost are thus 30 dollars per session, so you know that you need to charge more than this and settle on 35 dollars. Things go fine, but partway through the year you see the opportunity to offer evening hours. You will have to pay your workers more for the late hours, which is 30dollars/grooming, but still can charge only 35 dollars per session. Should you offer evening hours for the rest of the year?

Explanation / Answer

we have given:

Fixed cost = $20000

expected sale in the day time throughout the year = 2000

workers pay = $20

expected cost = 20000 + 20*2000

expected cost = 20000 + 40000 = 60000

expected cost per session = 60000/2000 = $30

charge per session = $35

total profit = (35-30)*2000

total profit = 5*2000 = $10000

If the opportunity for more session comes for late night then

workers pay = $30

charge per session = $35

profit per charge = 35 -30 = $5

So, profit earned over every extra session is postive($5). Hence i would offer evening hours for rest of the years.

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