lending hand financial corporation is a subsidiary of gracey enterprises 544675

Planning Future Sales for a Service Business

Lending Hand Financial Corporation is a subsidiary of Gracey Enterprises. Its main business is processing loan applications. Last year, Bettina Brent, the manager of the corporation’s loan department, established a policy of charging a $250 fee for every loan application processed. Next year’s variable costs have been projected as follows: loan consultant’s wages, $15.50 per hour (a loan application takes 5 hours to process); supplies, $2.40 per application; and other variable costs, $5.60 per application. Annual fixed costs include depreciation of equipment, $8,500; building rental, $14,000; promotional costs, $12,500; and other fixed costs, $8,099.

Required

1. Using the contribution margin approach, compute the number of loan applications the company must process to (a) break even and (b) earn a profit of $14,476.

2. Using the same approach and assuming promotional costs increase by $5,662, compute the number of applications the company must process to earn a profit of $20,000.

3. Assuming the original information and the processing of 500 applications, compute the loan application fee the company must charge if the targeted profit is $41,651.

4. Brent’s staff can handle a maximum of 750 loan applications. How much more can be spent on promotional costs if the highest fee tolerable to the customer is $280, if variable costs cannot be reduced, and if the targeted profit for the loan applications is $50,000?