Question

James House is planning on starting a cleaning services business but has not decided whether he should focus on residential clients or commercial clients. His estimates of revenue, variable expenses, and fixed expenses are shown below. Residential Commercial Revenue $ 115 per hour $ 125 per hour Variable expense $ 69 per hour $ 50 per hour Fixed expense $ 17,250 per month $ 21,600 per month Required:

1. At what volume of hours per month will James be indifferent between focusing on residential versus commercial clients?

2. Calculate the number of break-even hours for residential clients and commercial clients. (Round your answers to 1 decimal place.)

Break-even hours for residential clients		hours
Break-even hours for commercial clients		hours

3. Assume that James decides to focus on commercial clients and his business is operating at 360 hours per month. Calculate the margin of safety both in dollars and as a percentage of sales. (Round percentage answer to 1 decimal place.)

Margin of safety (in dollars)
Margin of safety as a percentage of sales		%

Answer 1

The answer has been presented in the supporting sheet.