Practice Problems:

Mike and Bob are looking at a business concept to engage in rather than find summer jobs. Their friend Tim washes house windows in his home town and they like his business concept. They can only operate for 10 weeks (and only five days per week) before they have to return to soccer training at Unversity.

Here are the facts:

They can rent a pickup and a trailer from Mikes grandfather for $300 per week.

Business Insurance can be purchased for a premium of $100 per week.

Tools and equipment are going to cost $1,500 and will be worn out by the end of the 10 week period

Cleaning supplies, gasoline etc. are going to cost $10 per hour of operation.

They have decided to charge clients on a per hour basis.

Question:

What are their Fixed costs and how do they break down per week? Per day?

What are their Variable Costs per hour?

If they decide to charge $30 per hour; what is their Contribution margin per hour?

What would be their expected profit per week be if they were able to work an average of 6 hours per day?

What is their Maximum Profit for the summer if they work ten hours per day five days a week for the full ten weeks?