Question

Harrison hotels is considering adding a spa to its current facility in order to improve its list of amenities. operating the spa would require a fixed cost of $22500 a year. variable cost is estimated at $30 per customer. the hotel wants to break even if 12600 customers use the spa facility. what should be the price of the spa services? $ (give your answer to the nearest penny)

Answer 1

F = $22,500 per year

VC = $30 per customer

Q₍be₎ = 12,600 customers

SP = ?

Q₍be₎ =  F / (SP - VC)

12600 = 22500 / (SP - 30)

12600(SP - 30) = 22500

12600SP - 378000 = 22500

12600SP = 22500 + 378000

12600SP = 400,500

SP = 400,500 / 12,600

SP = $31.78