Rob is expecting a busy holiday season and is trying to decide if he should buy

Question

Rob is expecting a busy holiday season and is trying to decide if he should buy the new equipment. He is projecting that he will clean 7 carpets a day and work 38 days during the holiday. If he is correct about these projections what are his gross margins for the two methods? In your answer, list the current first and then the new GM (i.e. current/new).

Remember that gross margins compare price and gross profits and is calculated as:

FORMULA = SELLING PRICE – VC
                        _____________________     
                        SELLING PRICE

Current:
Price to clean a carpet = $75
Materials (variable costs) = $15
Monthly fixed costs = $4000

New:
Fixed costs: $4750
Variable costs per carpet: 18.50
Price per carpet: $99

1) 79% and 82%

2) They are the same for both methods

3) 80% and 81%

4) 81.2% and 83.1%

5) There is missing information

Explanation / Answer

Gross margin for Current = (75-15)/75*100 = 80%

Gross margin for New = ((99-18.5)/99 = 81%

Ans 3

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