Construction on the Wildhorse Full-Service Car Wash is nearing completion. The owner is Kevin Hall, a retired accounting professor. The car wash is strategically located on a busy street that separates an affluent suburban community from a middle-class community. It has two state-of-the-art stalls. Each stall can provide anything from a basic two-stage wash and rinse to a five-stage luxurious bath. It is alltouchless," meaning there are no brushes to potentially damage the car. Outside each stall, there is also a 400-horsepower vacuum. Kevin likes to joke that these vacuums are so strong that they will pull the carpet right out of your car if you aren't careful. Kevin has some important decisions to make before he can open the car wash. First, he knows that there is one drive-through car wash attached to a gas station only a 10-minute drive away. It charges $ 5.00 for a basic wash, and $ 4.00 if you also buy at least 30 litres of gas. It is a brush-type wash with rotating brush heads. There is also a self-serve stand outside your car and spray until you are soaked car wash a 15-minute drive away. He went over and tried this out. He went through $ 3.00 in quarters to get the equivalent of a basic wash. He knows that both of these locations always have long lines, which is one reason he decided to build a new car wash. Kevin is planning to offer three levels of wash service: basic, deluxe, and premium. The basic is all automated; it requires no direct intervention by employees. The deluxe is all automated except that, at the end, an employee will wipe down the car and put a window treatment on the windshield that reduces glare and allows rainwater to run off more quickly. The premium level is a pampered service. This will include all the services of the deluxe, plus a special wax after the machine wax, and an employee will vacuum the car, wipe down the entire interior, and wash the inside of the windows. To provide the premium service, Kevin will have to hire a couple of car wash specialists to do the additional pampering. Kevin has made the following estimates, based on data he received from the local chamber of commerce and information from a trade association: Per Unit Total Direct materials per basic wash $ 0.30 Direct materials per deluxe wash 0.76 Direct materials per premium wash 1.06 Direct labour per basic wash n/a Direct labour per deluxe wash 0.40 Direct labour per premium wash 2.40 Variable overhead per basic wash 0.11 Variable overhead per deluxe or premium wash 0.24 Fixed overhead $ 117,000 Variable selling and administrative expenses-all washes 0.11 Fixed selling and administrative expenses 132,300 The total estimated number of washes of any type is 45,000 per year. Kevin has invested assets of $390,000. He would like a return on investment of 15%. Kevin estimates that of the total 45,000 washes, 20,000 will be basic, 20,000 will be deluxe, and 5,000 will be premium. Using cost-plus pricing, calculate the selling price that Kevin should use for each type of wash to achieve his desired ROI of 15%. (Round answers to 2 decimal places, e.g. 15.25.) Basic Deluxe Premium Target selling price 7.36 $ 8.35 ta $ 10.65 During the first year, instead of selling 45,000 washes, Kevin sold 43,000 washes. He was quite accurate in his estimate of first- year sales, but he was way off on the types of washes that he sold. He sold 4,000 basic, 30,000 deluxe, and 9,000 premium. His actual total fixed expenses were as he expected, and his variable cost per unit was as estimated. Calculate Kevin's net income and his actual ROI. (Round ROI to 2 decimal places, e.g. 2.75% and net income to O decimal places, e.g. 1,245.) Net income ROI %
