Republic of the Philippines

NUEVA ECIJA UNIVERSITY OF SCIENCE AND TECHNOLOGY

Main Campus, Sumacab Este, Cabanatuan City
College of Management and Business Technology

ANGEL RIVERA’S CARZWASH: A CASE STUDY

Submitted by:

CARBONEL, MARY ROSE F.

MABUTI, LADYLYN M.
PADILLA, CLARIZEL
REGAL, KRISCEL L.
VILLAFRANCA, CALVIN
BSBA 4-I

Submitted to:

Mr. JEFFEL RYAN BULANDOS

Subject Teacher
I. INTRODUCTION OF THE CASE

In this business, variable costs are directly related to sales volume. As sales go up, so do
variable costs. As sales go down, variable costs go down. Variable costs are costs of labor or
materials that change with sales. One way for a car wash business to save money is to reduce its
variable costs. On the other hand, Fixed costs are the costs associated with a business' product or
services that must be paid regardless of the volume of that product or service offered. Fixed costs
do not change with sales volume.

When a business reaches the break-even point, the total sales equal the total expenses.
That means the business bring in the same amount of money that it need to run the business. For
example, at the break-even point of a car wash business, the business does not profit or generate
a loss. The first time it reaches the break-even point after operating at a net loss can indicate a
positive turn for the car wash business. By analyzing the break-even point numbers, the owner
can figure out whether the business needs to increase sales prices, cut expenses, or both to
surpass the break-even point and turn a profit.

Lastly, the margin of safety is used in break-even analysis to indicate the amount
of sales that are above the break-even point. In other words, the margin of safety indicates the
amount by which the car wash business’ sales could decrease before it will become unprofitable.

Number of Cars to be washed/valeted each week to break-even

SP 120.00 120.00
4500
VC 80.00
60
CM 40.00
FxC 1,600
Sales in Units 60 (Average of Vehicles)

FxC 1600
BEP =II
CM / v
= 40
= 40 units/vehicles

Weekly Profit
(60 vehicles per week)

SP to Sales 7200
VC 4800
CM 2400
FxC 1,600
Profit before tax P 800.00 is the profit of 60 vehicles per week
 Reducing Selling Price

Sales (NSP x no. of vehicles) (100x60) = 6,000.00

VC (VCx no. of vehicles) (80x60) = 4,800.00
CM 1,200.00
FxC 1,600.00

Profit -400.00

Number of Additional Vehicles to be Washed/Valeted to achieve the desired weekly profit

FxC + DP
(Desired Profit = )
CM / v

FxC + DP
BP =
CM / v

1600+800
=
40

= 60 units

Usefulness of Break-even analysis to “Carzwash Business”

The use of a break-even analysis implies that at some point in the operations of the
Carzwash business, total revenue equals total cost which is the break-even point. This will be a
very effective tool in the hands of management because

The higher the break-even point, the less chances are of operating the business at a profit
over the years. Additionally, Profit performance can be improved by increasing volumes, selling
price, and decreasing the variable costs and fixed costs.

It also gives an idea about contribution which means the difference between sales and
variable cost. So, profit earning capacity of the Carzwash business may be known. If from the
amount of contribution fixed expenses are deducted, the profit figure will be available. Also, the
margin of safety of the firm can be known from this breakeven analysis. Margin of safety can be
known by deducting breakeven sales from the actual sales. It plays an important role as an
indicator as to how the margin can be increased.
II. SUGGESTED SOLUTION

Lowering the price is not the key to increase the business viability. Maintenance and
cleanliness are paramount to ensuring continual revenue growth from a carwash. In addition to a
clean car, customers prefer a clean facility. The owner should be responsible for keeping the
carwash clean, safe and operational for the customer. At least one employee at the facility, or in
an area, should be responsible for maintaining the site and taking care of sweeping, trash
removal and overall cleanliness. A clean site projects success and has an influencing impact on
repeat and potential customers.
However, while the quality and effectiveness of the service will result in clean cars and
happy customers, this alone does not assure to attract new customers to your business.
Marketing efforts should be considered such as creating a loyalty program with exclusive
promotions and rewards to keep customers coming back. Take advantage also of a signage
within the City of Cabanatuan to promote the business. Large signs are eye-catching signs along
the road make for great attention grabbers.

III.OPINION ON THE BREAK-EVEN ANALYSIS

Based on the break-even analysis of the Carzwash business, in order to achieve the
desired weekly profit of P800.00, the business needs to cater additional 60 vehicles per week
aside from the average of 60 vehicles per week for a total of 120 vehicles per week since the
selling price was reduced.

Carwash system can be one of the most successful investments on the market today.
However, many owners ignore the additional practices that will add value to the customer and
increase business revenue, including important and often necessary carwash upgrades. Marketing
strategies should be considered.

IV. SUMMARY, CONCLUSION AND RECOMMENDATION

Summary

Anger Rivera’s Carzwash business is facing a challenge to her business since a

competitor intends to set up a car wash business nearby the gas station. The owner considered it
as a competitive advantage gained by offering consumers by means of lower prices. However,
for the business to survive, Carzwash needs to cater additional 60 cars per week aside from the
regular 60 vehicles per week just to earn for a profit of P800.00.
Conclusion

Based on the analysis of the break-even and findings, the following conclusions were
drawn:

1. Lowering the price of a car wash increases the number of vehicles to be catered to
achieve a profit.

2. Lowering the price leads to a break-even point and/or a negative profit.

3. The location of the car wash business also plays a significant role in this case.

Recommendations

1. The owner needs to calculate the cost of various factors such as chemicals and other
means. As soon as this is done, he will have an idea of the actual expense for washing
of a car and can make use of this format to acquire the base car wash price and ensure
it covers a substantial profit margin for the business.

2. Partner with a trusted distributor who can provide valuable guidance regarding the
local market, potential customers and competition to help maximize revenue
potential.

3. Create an inviting and safe site because maintenance and cleanliness are paramount to
ensuring continual revenue growth from carwash business. In addition to a clean car,
customers prefer a clean facility.

4. Market the business with a unique mix of tactics such as having loyalty programs.