Question

As part of their application for a loan to buy Lakeside Farm, a property they hope to develop as a bed-and-breakfast operation, the prospective owners have projected:
Monthly fixed cost (loan payment, taxes, insurance, maintenance) $6000
Variable cost per occupied room per night $ 20
Revenue per occupied room per night $ 75
a. Write the expression for total cost per month. Assume 30 days per month.
b. Write the expression for total revenue per month, first using the general variables, and second including the values of known variables).
c. If there are 12 guest rooms available, can they break even? What would be the profit with 12 rooms?
d. What percentage of rooms would need to be occupied, on average, to break even?

Answer 1

Answer:

Instructions are below.

Step-by-step explanation:

Giving the following information:

Monthly fixed cost= $6,000

Variable cost per occupied room per night= $20

Revenue per occupied room per night= $75

First, we need to structure the total cost formula:

Total cost= 6,000 + 20*x

x= occupied room

Now, we can find the expression for total revenue:

Revenue= selling price per unit*units - fixed cost - unitary variable cost*units

Revenue= 75*x - 6,000 - 20*x

I assume that the 12 rooms will be occupied for the 30 days:

Revenue= 75*(12*30) - 6,000 - 20*(12*30)

Revenue= $13,800

Finally, we need to determine the break-even point in units:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 6,000 / (75 - 20)

Break-even point in units= 109 rooms

On percentage= (109/360)*100= 30.28%