Ajay Singh offers gift-wrapping services at the local mall. Ajay wraps each package, regardless of size, in the customer’s choice of wrapping paper and bow for a price of $3. Ajay’s variable costs total $1 per package wrapped, and his fixed costs amount to $600 per month.

Due to the anticipated increase in demand over the holiday season, Ajay is considering hiring a helper, at a cost of $8.50 per hour, to help him wrap packages. With the helper, Ajay estimates that he can wrap 110 packages in a 10-hour day. Without the helper, Ajay estimates that he can wrap 60 packages in a 10-hour day. Ajay plans on operating his business for thirty 10-hour days during the holiday season.

Required:

a. Does Ajay’s decision deal with excess supply or excess demand?

b. Using the gross approach, determine whether Ajay should hire the helper.

c. Using controllable cost analysis, determine whether Ajay should hire the helper.

d. Assume Ajay’s fixed costs were $1,000 rather than $600. Would this affect Ajay’s decision to hire a helper?