Question

You run a nail salon. Fixed monthly cost is $5,518.00 for rent and utilities, $6,014.00 is spent in salaries and $1,613.00 in insurance. Also every customer requires approximately $4.00 in supplies. You charge $120.00 on average for each service. You are considering moving the salon to an upscale neighborhood where the rent and utilities will increase to $11,401.00, salaries to $6,716.00 and insurance to $2,203.00 per month. Cost of supplies will increase to $7.00 per service. However you can now charge $150.00 per service. At what point will you be indifferent between your current location and the new loaction?

Answer 1

With 266 costumers it is indifferent where the nail salon is located.

Step-by-step explanation:

Giving the following information:

Fixed monthly cost is $5,518.00 for rent and utilities

$6,014.00 is spent on salaries.

$1,613.00 in insurance.

Every customer requires approximately $4.00 in supplies.

You charge $120.00.

New location:

Fixed costs in rent and utilities= $11,401

Salaries= $6,716.00

Insurance to $2,203.00 per month.

The cost of supplies will increase to $7.00 per service.

Selling price= $150.00 per service.

Gross profit old location= Contribution margin*Q - fixed costs

Gross profit old location= (120-4)*Q - 13145

Gross profit new location=Contribution margin*Q - fixed costs

Gross profit new location= (150-7)*Q - 20320

116*Q-13145= 143*Q - 20320

7175=27*Q

Q=265.74074 = 266costumers