Question: Question 5: Silvers Dry Cleaners are located in a small town in Nova Scotia and have provided laundry and dry cleaning services to the community
Question 5: Silvers Dry Cleaners are located in a small town in Nova Scotia and have provided laundry and dry cleaning services to the community for decades. A representative from the local high school approached the owner of Silvers Dry Cleaners about a special contract to clean the uniforms of all high school teams. The contract with the high school offers Silvers Dry Cleaners 100 jerseys a week for 30 weeks at a price of $2.50 per unit. 0.70 The average revenue per garment laundered is $3.50 and the costs of laundering clothes on a per garment basis is as follows: Costs of Laundering (per garment) Direct materials $ 0.55 Direct labour 0.75 Variable overhead Fixed overhead 0.80 Fixed marketing & administration 0.40 Total cost (per garment) $ 3.20 The dry cleaner has the capacity to clean the contracted amount of high school jerseys without any increase in fixed costs. Given the cost per unit of $3.20, the owner of Silvers Dry Cleaners does not believe it is feasible to accept the contract with the school given that they would lose money on each garment laundered. Required: a) Provide a quantitative analysis of the decision to accept the special order for laundering services from the high school. b) What is the impact on the profit of accepting the special order for laundering services as requested by the high school? c) What qualitative factors should Silvers Dry Cleaners consider in their decision
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
