Superwash Ltd operates a drive-through car wash service in Leeds offering two different levels of car wash: the 'Basic' car wash and the 'Deluxe' car wash. A Basic car wash requires 0.25 hours of labour time and a Deluxe car wash requires 0.3 hours of labour time. All labour is paid at a rate of £8 per hour. The cost of cleaning products, water and polishing products is covered in a variable overhead cost which equates to £7 per labour hour. Disposable cleaning and polishing cloths are used on a per wash basis at a cost of £0.25 per Basic car wash and £0.50 per Deluxe car wash.

Superwash Ltd employs a car wash supervisor at a salary of £12,000 per annum. The rent for the car wash premises is £9,000 per annum. Although water is paid for on a unit basis (and included in the variable overhead cost) there is also a fixed annual charge of £3,000 per annum.  

Superwash Ltd charges customers £8 for a Basic car wash and £12 for a Deluxe car wash and it is estimated that one Deluxe car wash is sold for every four Basic car washes sold. The car wash is open 50 weeks per year, but only opens from Thursday to Sunday every week, as there is minimal demand on Mondays, Tuesdays and Wednesdays.

 

Requirement:

Calculate the number of Basic car washes and the number of Deluxe car washes that Superwash Ltd must sell per week in order to break even.  
(10 Marks)

Current weekly demand for car washes is 140 for Basic and 30 for Deluxe. Calculate:

current weekly profit; and
the margin of safety, expressed in revenue (£).
(8 Marks)

Superwash Ltd is considering employing a salesperson in order to increase sales. The salesperson would be paid a basic salary of £6,000 plus commission of £0.10 for every car wash sold. By employing a salesperson, Superwash Ltd anticipates that sales of the Basic car wash will increase by 20% and sales of the Deluxe car wash will increase by 30%.  Explain whether or not Superwash Ltd should employ a salesperson, supporting your answer with all relevant calculations.
(20 Marks)

Referring to (c), discuss the assumptions and the limitations of the calculations and the analysis/information used for these calculations. Discuss any other factors that Superwash should take into consideration before making a decision about whether to proceed with the new venture.