London Car Wash offers three different types of service (Wash, Wash+ Dry, and Wash+ Dry+ Vacuum) using the same staff. Fixed cost for next year is expected to total £40,000. Various estimates for next year have been made as follows:

Item	Services
Wash (W)	Wash + Dry (W+D)	Wash + Dry + Vacuum (W+D+V)
Selling price (£/unit)	20	30	39
Variable material cost (£/unit)	10	15	18
Other variable costs (£/unit)	5	6	10
Share of fixed cost (£/unit)	4	8	12
Staff time required (hours)	1	2	3

Required:

1. If the business were to offer only W+D next year, how many units of the service would it need to provide in order to break even? (7 marks: 3 marks for including the correct accounts, 3 marks for correct calculation, 1 mark for correct break-even point).
2. If the business has limited staff hours available next year, in which order of preference would the three services come? (9 marks: 3 marks for correct contribution per unit per product; 3 marks for correct contribution per staff/hour; 3 marks for correct order of priority).
3. The maximum market for next year for the three services is as follows:

W+D 3,000 units

W+D+V 2,000 units

W 5,000 units

London Car Wash has a maximum of 10,000 staff hours available next year. What quantities of each service should the business provide next year and how much profit would this be expected to yield? (6 marks: 3 marks for correct contribution calculations; 1 mark for correct calculation of profit; 2 marks for correct number of unfulfilled demand numbers).

Answer rating: 100% (QA)

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