Clean Wash Laundromat

I. BACKGROUND OF THE CASE Ms. Giesel Reyes, the proprietor of Clean Wash Laundromat, reread the recently received fax from Hair cuts, a well-established chain of beauty parlors. Hair cuts is proposing a business deal with Ms. Reyes wherein Hair Cuts will avail of the wash, dry and fold service of Clean Wash Laundromat at 15% off the regular price. The service will cover a period of four months from June to September, which are peak months for Clean Wash Laundromat and will entail 60 kg per week or 240 kg per month of laundry. Clean wWash Laundromat was established two years ago with an initial investment of P800, 000. 00.

Located near to prominent universities and several residential condominiums, Clean Wash caters mostly to students who live in dormitories and to residents of condominiums. It offers three basic services: wash, dry and fold; pressing and dry-cleaning. Except for dry-cleaning services, all services are done in-house. Dry cleaning is subcontracted to Dry Cleaning experts and is offered at a 15% mark-up. Clean Wash Laundromat operates seven days a week from 7 a. m. to 9 p. m. It has 5 washing machines, 5 dryers and 3 flat irons. A washing machine and a dryer can handle a maximum of 15 loads of 3 kg laundry per day (1 load=3kg).

Clean Wash offers next day pick-up service. Upon request of the customer, Clean Wash can arrange a same day pick-up or the customer can wait in the shop at no extra cost. II. STATEMENT OF THE PROBLEM Should Ms. Reyes accept the proposal of Hair Cuts? III. ARES OF CONSIDERATION a. Quantitative Factors PRICE Wash, Dry, FoldP35/kg AVERAGE NUMBER OF LOADS PER MONTH (1 load=3kg) January 1,960. 00 February 1,820. 00 March 1,680. 00 April 1,680. 00 May 1,540. 00 June 2,080. 00 July 2,160. 0 August 2,170. 00 September 2,150. 00 October 1,960. 00 November 2,100. 00 December 1,960. 00 ELECTRICITY BILLS (IN PESOS) January 17,208. 00 February 16,746. 00 March 16,284. 00 April 16,284. 00 May 15,822. 00 June 17,604. 00 July 17,868. 00 August 17,901. 00 September 17,835. 00 October 17,208. 00 November 17,670. 00 December 17,208. 00 b. c. d. e. f. g.

OTHER COSTS RentP30,000 per month SalaryP1,060 per day x 30 days P31, 800 per month Depreciation of machinesP4,166 per month (Washing machine and dryer costs on average P50,000 each) TelephoneP1,400 per month Detergentaverage of P76. 8 per load Wateraverage of P0. 50 per load LPGaverage of P4. 50 per load Leasehold ImprovementsP100,000 SignageP30,000 b. Qualitative Factors •Reject/Decline ?It may bring a bad reputation to Clean Wash for not accepting the business deal. •Accept ?The supplier of detergent may give discounts to Clean Wash for an additional order of detergent. Additional workload for Clean Wash ?The regular customers may know that Clean Wash gave 15% of the regular price to Hair Cuts. IV. ALTERNATIVE COURSES OF ACTION a. Reject/decline the proposal of Hair Cuts. b. Accept the proposal of Hair Cuts. V. ANALYSIS Normal Capacity Load 1 load=3kg 1 washing machine Total load/day 15 15 x 3 = 45 Total load/month 15 x 30 = 450 45 x 30 = 1350 5 washing machine Total load/day 15 x 5 = 75 45 x 5 = 225 Total load/month 450 x 5 = 2250 1350 x 5 = 6750 AVERAGE NUMBER OF LOADS PER MONTH (1 Load=3 Kg) Load Normal Capacity Excess Capacity

January 1,960 2250 290 February 1,820 2250 430 March 1,680 2250 570 April 1,680 2250 570 May 1,540 2250 710 June 2,080 2250 170 July 2,160 2250 90 August 2,170 2250 80 September 2,150 2250 100 October 1,960 2250 290 November 2,100 2250 150 December 1,960 2250 290 From the above table, we can see that there are excess capacities in Clean Wash Laundromat. Note that Hair Cut will entail only to 60 kg per week (20 loads) or 240 kg per month (80 loads). COMPUTE FOR THE VARIABLE AND FIXED COSTS OF ELECTRICITY Electricity bills: Load (X) Amount (Y)

January 1,960. 00 17,208. 00 February 1,820. 00 16,746. 00 March 1,680. 00 16,284. 00 April 1,680. 00 16,284. 00 May 1,540. 00 15,822. 00 June 2,080. 00 17,604. 00 July 2,160. 00 17,868. 00 August 2,170. 00 17,901. 00 September 2,150. 00 17,835. 00 October 1,960. 00 17,208. 00 November 2,100. 00 17,670. 00 December 1,960. 00 17,208. 00

Using High-Low Method LoadAmount High2170P17901 Low1540P15822 Variable cost per load(P17,901. 00-P15,822. 00)P2079P3. 30 2,170-1,540630 Fixed Cost P17,901. 00-(3. 30 x 2170) P10,740. 00 Using Least Square Method Variable cost per load P 3. 30 Fixed Cost P1,0740. 00 Electricity bills: Load (X) Amount (Y) Variable CostFixed Cost January 1,960 17,208. 00 1960 x 3. 30 = 6,468. 00 10,740. 00 February 1,820 16,746. 00 1820 x 3. 30 = 6,006. 00 10,740. 00 March 1,680 16,284. 00 1680 x 3. 30 = 5,544. 00 10,740. 0 April 1,680 16,284. 00 1680 x 3. 30 = 5,544. 00 10,740. 00 May 1,540 15,822. 00 1540 x 3. 30 = 5,082. 00 10,740. 00 June 2,080 17,604. 00 2080 x 3. 30 = 6,864. 00 10,740. 00 July 2,160 17,868. 00 2160 x 3. 30 = 7,128. 00 10,740. 00 August 2,170 17,901. 00 2170 x 3. 30 = 7,161. 00 10,740. 00 September 2,150 17,835. 00 2150 x 3. 30 = 7,095. 00 10,740. 00 October 1,960 17,208. 00 1960 x 3. 30 = 6,468. 00 10,740. 0 November 2,100 17,670. 00 2100 x 3. 30 = 6,930. 00 10,740. 00 December 1,960 17,208. 00 1960 x 3. 30 = 6,468. 00 10,740. 00 Per kg. Price less 15% RejectAccept Revenue P35 x . 85 =P29. 75 per kg. – P29. 75 x (240 x 4) = P28,560. 00 Less: Electricity bill – P3. 3 x ((240/3) x 4 ) = (1,056. 00) Detergent – P76. 80 x ((240/3) x 4) = (24,576. 00) Water – P0. 50 x ((240/3) x 4) = (160. 00) LPG – P4. 50 x ((240/3) x 4) = (1,440. 00) Additional Income June to September – P1,328. 00 VI. RECOMMENDATION

Since, Clean Wash Laundromat has excess capacities to handle the 240 kg or 80 loads of laundry per month from June to September; Ms. Reyes should accept the business proposal of Hair Cuts for an additional income of P1, 328. 00. ADDITIONAL COMPUTATION: If the average number of loads per month for the period covered are as follows: June2170 July 2190 August2200 September2180 AVERAGE NUMBER OF LOADS PER MONTH (1 Load=3 Kg) Load Normal Capacity Excess Capacity January 1,960 2250 290 February 1,820 2250 430 March 1,680 2250 570 April 1,680 2250 570 May ,540 2250 710 June 2,1702250 80 July 2,190 2250 60 August 2, 2002250 50 September 2, 1802250 70 October 1,960 2250 290 November 2,100 2250 150 December 1,960 2250 290 COMPUTE FOR THE VARIABLE AND FIXED COSTS OF ELECTRICITY Electricity bills: Load (X) Amount (Y) January1,96017,208. 00 February1,82016,746. 00 March1,68016,284. 00 April1,68016,284. 00 May1,54015,822. 00 June2,17017,604. 00 July2,19017,868. 00 August2,20017,901. 00 September2,18017,835. 00 October1,96017,208. 00 November2,10017,670. 00 December1,96017,208. 00 Using High-Low Method LoadAmount High2200P17,901 Low1540P15,822

Variable cost per load(P17,901. 00-P15,822. 00)P2,079P3. 15 2,200-1,540660 Fixed Cost P17,901. 00-(3. 15 x 2200) P10,971. 00 Using Least Square Method Variable cost per load P 3. 07 Fixed Cost P11,147. 99 Electricity bills: Load (X) Amount (Y) Variable CostFixed Cost January 1,960. 00 17,208. 00 1960 x 3. 07 = 6,017. 20 11,147. 99 February 1,820. 00 16,746. 00 1820 x 3. 07 = 5,587. 40 11,147. 99 March 1,680. 00 16,284. 00 1680 x 3. 07 = 5,157. 60 11,147. 99 April 1,680. 00 16,284. 00 1680 x 3. 07= 5,157. 60 11,147. 99 May 1,540. 00 15,822. 00 1540 x 3. 07 = 4,727. 80 11,147. 9 June 2,170. 00 17,604. 00 2170 x 3. 07 = 6,661. 90 11,147. 99 July 2,190. 00 17,868. 00 2190 x 3. 07 = 6,723. 30 11,147. 99 August 2,200. 00 17,901. 00 2200 x 3. 07 = 6,754. 00 11,147. 99 September 2,180. 00 17,835. 00 2180 x 3. 07 = 6,692. 60 11,147. 99 October 1,960. 00 17,208. 00 1960 x 3. 07 = 6,017. 20 11,147. 99 November 2,100. 00 17,670. 00 2100 x 3. 07 = 6,447. 00 11,147. 99 December 1,960. 00 17,208. 00 1960 x 3. 07 = 6,017. 20 11,147. 99 Clean Wash Laundromat should reject/decline the business proposal of Haircuts to be able to avoid or eliminate loss of P193. 00.