5) You have been hired by Crosstown Cleaners (CTC) - a cleaning company that offer its services in the Greater Toronto Area (GTA). During your first day at work you find out that CTC has two services that it sells: Commercial cleaning which it charges $146 per hour and Residential cleaning which it charges $101 per hour. Cost per job is basically the same. CTC pay its cleaners $25 per hour regardless of if they are working on a commercial or residential job. Cleaning supplies used during the residential jobs is $15 per hour and $10 per hour for commercial jobs. Based on its current capacity, CTC cannot do more than 10,000 hours per year. For this coming year, CTC expects to do 7,500 hours of cleaning with fixed costs of $250,000. Historically, 60% of CTCs hours comes from residential jobs. At the end of your first day, you have a meeting with the two owners of CTC - a brother and sister team. You are asked to help them settle a disagreement on the direction of the business. The sister believes that if they specialize in just doing residential cleaning that they could increase their sales to capacity. The brother believes that if CTC lowered its sales price to $96 per hour for residential jobs and $139 per hour for commercial jobs, CTC's cleaning hours would grow by 10%. Assuming no other assumptions would change, which, financially speaking, is the better thing to do (don't forget the 'Do Nothing' option)?

Required:

Q) Who do you agree with? Do the analysis for each option (show your work) and write a short memo to the owners.