CASE 1

Mamat just retired and he bagged RM300,000 frim his EPF accounts. He plans to run a self-service laundry business in Muar, Johor. Many of his friends suggested him to operate as sole proprietor as the laundry business in small and easy to manage. However, he has no experience in doing any business as he used to be a clerk in a manufacturing company in BatuPahat.

He plans to invite Rajan to become his partner in the business. Rajan his old colleague has been wheel-chaired for 4 years and has limited physical mobility but has a brain in doing laundry business. Rajan unable to contribute much in initial capital RM50,000 is the most he can invest a loan from loan shark if Mamat agree to turn Rajan become partner in the laundry busniness. The profit sharing would be based on capital conributions.

Initial location survey by Mamatfound that he wants to open in Taman Segar in Muar in which high density of population with good average income. The rental cost is about RM5,000 per month. In addition there is no self-service laundry business in Taman Segar and he believes that that is the best location to grab the maximum sales.

Rajan, on the other hand suggested to have the business opened near his house (around 3 kilometres)in Taman MawarinBatuPahat with lower rental cost around RM3,000 per month. The market survey shows that majority of population are factory workers and students of PoliteknikBatuPahat. It is a great market indeed but there is already three self-service laundries plus two conventional laundries.

Initial cost:

Plan A:

Purchase 4 washers at RM30,000 each, maintenance free for 3 years by vendor, can be paid 12 months instalment

Purchase 4 dryers at RM20,000 each, maintenance free for 3 years by vendor, can be paid 12 months instalment

Interior design conventional looked RM10,000 cost of renovation

Plan B:

Purchase 4 washers at RM20,000 each, no maintenance, no instalment

Purchase 4 dryers at RM10,000 each, no maintenance, no instalment

Interior design high end looked RM20,000 cost of renovation

Maintenance fee estimated at RM2,000 per month in first three years and RM3,000 in the last two years.

All machines need to be replaced after five years.

Projected sales and costs

Taman Segar

Monday to Friday 15 washes and 20 dries per day

Saturday and Sunday 25 washes and 30 dries per day

Prices wash RM7, dry RM4

Taman Mawar

Monday to Friday 12 washes and 18 dries per day

Saturday and Sunday 18 washes and 20 dries per day

Prices wash RM5, dry RM3

Rental cost is based on location

Electricity and water is based on number of washes and dries RM3 for electricity and RM1.50 for water

Required:

1. Which types of business shall Mamat has? Explain your reasons.

2. For initial costs which plan shall Mamat venture? Why?

3. Providetables illustrating the projected sales, cost and profit in the first quarter of the business. Highlight also their/his taxable income for each option taken. 9Hint: you may include any relevant cost in a laundry business)

4. Based on your tables where should the business opened? What type of business it shall be? Explain your answer with numeric reason.