mgt305a2.1

Note: The following problem is fictitious but employs names of, and news from, real organizations. The idea is to increase the reality of the situation, and to improve your awareness of various industries and organizations.

An entrepreneurial friend of yours is thinking about starting a car wash business, perhaps like Mike's Express Carwash. This individual knows that you’re studying operations management and has asked you for help on deciding whether to install one or two wash lines in the initial location.

The entrepreneur provides some assumptions:

$7 selling price of a wash
$4 variable cost per wash
Monthly fixed costs of $8000 for one line, $13,000 for two lines
Each line can process 20 cars per hour
18-24 cars per hour forecast demand
250 hours of operation per month

The entrepreneur wants to know the following:

Should the car wash have one or two lines?
How many cars must be cleaned per month to break even with one line? With two lines?
How would the results change if selling price could be increased to $9/car (thru positive word of mouth from customers) and variable costs could be decreased to $2 through use of new washing technology?

In your memo, make sure you describe your analytical method. This should include the data that you're using, where you got it (cites), and how you plan to use it in your analysis.

Report your findings to your friend in a memo.

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