Question

Ahmed wants to earn some extra pocket money while on his summer break, which is 5 weeks long. He plans to work for three days a week and enjoy his vacation the rest of the week. He has identified that car cleaning is a good business in his locality. He buys a trolley for $500 to carry water, detergent, brushes, towels, and other items, and he spends about $2 per car on these items.

a. If Ahmed charges $10 to clean one car, how many cars would he need to clean to breakeven?

b. If Ahmed cleans about 10 cars per day, how much money does he expect to make?

c. Another possibility for Ahmed is to clean the open parking lots (areas, not cars). To do this, he need to hire a truck for $1,500 and hire a driver on an hourly basis, which, including gas, would cost him about $25 per parking lot. Ahmed estimates that the truck helps him complete four parking lots per day. If he charges $125 per parking lot, would this be a better alternative than cleaning cars?

Answer 1

Summer break duration = 5 weeks

Ahmed plans to work for 3 days a week

Total days he would work in the 5 week duration = 5*3 = 15 days = D

Fixed cost of buying a trolley, F = $500

Variable cost of other consumables, c = $2/car

Ahmed charges to clean a car, p = $10

a. Breakeven = F/ (p-c) = 500 /(10-2) = 62.5

On average he needs to clean 62.5 cars to breakeven.

b. If Ahmed cleans 10 cars a day, he can clean D*10 = 15*10 = 150 cars in the 5 week duration

His revenue from 150 cars = 150* 10 = $1500

His cost = 150*2+500 = 300+500 = $800

He can make 1500-800 = $700 if he cleans 10 cars per day

c. Fixed cost for hiring a truck = $1500

The variable cost for hiring driver and other consumables = $25/parking lot

He charges for cleaning = $125/parking lot

Ahmed completes cleaning of 4 parking lots a day

He can clean D*4 = 15*4 = 60 parking lots in the 5-week duration

The revenue from 60 parking lots = 60*125 = $7500

The cost involved = variable cost + fixed cost = 60*25+1500 = $3000

He can make 7500-3000 = $4500 in the 5 week duration.

So, yes, this is a better alternative than cleaning cars.