Lenny Financial Corporation is a subsidiary of Harpo Enterprises. Processing loan applications is the main task of the corporation. Last year, Nancy Bar, manager of the 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 five 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.
- Determine the number of loan applications the company must process to (a) break even and (b) earn a profit of $14,476.
- Determine the number of applications the company must process to earn a target profit of $20,000 if promotional costs increase by $5,662.
- Assuming the original information and the processing of 500 applications, compute the loan application fee the company must charge if the target profit is $41,651.
- Bar believes that 750 loan applications is the maximum number her staff can handle. 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 target net income for such an application load is $50,000?