Angie’s Cleaning Service does routine cleaning of houses. She charges $100 for a house taking four hours of cleaning, her standard product offering. Each time she cleans, she uses $5 in variable supplies such as cleaning fluids and paper towels. She has fixed costs of an accountant, a van, a vacuum cleaner, and sundry items amounting to $25,000 per year.

REQUIRED:

a. Develop Angie’s cost formula for cleaning houses.

b. What is Angie’s breakeven point in number of houses cleaned per year?

c. What is the revenue dollars for Angie’s breakeven point?

d. Angie wants to make $50,000 a year in before- tax profits. How many houses does she have to clean now?

e. Angie wants to make $50,000 a year in after- tax profits. Now how many houses does she have to clean? She pays 25% in taxes on average.

f. Angie is considering adding a second person to her company. It would cost her $50 per house for labor, but she could increase the number of houses cleaned per week from her current 12 to 22. Should Angie hire this worker? Why or why not? Develop a brief business case to explain your conclusions