Last year: Rev = $30,000 FC = $27,239 ($34,739 - $7,500) VC = $10.56 per unit ($30,000 rev/$85 per room = 353 rooms $3,729 VC/353rooms)
Break-even – 85x = 10.56x + 27239 + 0
74.44x = 27239 x = 366 rooms
Max profit – (365 days *6 rooms = 2190 rooms available) ($85 per room*2190 rooms = $186150 revenue) R 186150.00 - VC (23126.40) CM 163023.60 - FC (27239.00) Profit $135,784.60
Last year – R 30000.00 - VC (3727.68) CM 26272.32 - FC (27239.00) Profit ($966.68)
With Maggie: FC = $34,739 VC = 10.56 per unit ≤ 294 rooms 40.31 per unit > 295 rooms (Maggie is paid 35% of revenue over $25,000 25000/85 = 294 rooms)
Break – even – 85x + (85*294) = (10.56*294) + (40.31x) + 34739 44.69x = 12853.64 x = 288 + 294 x = 582
1. Before Maggie began working for Phil and Carol, breakeven for the Snow Geese Inn was 366 rooms. During the year there were revenues of $30,000, variable costs of $3,727 and fixed costs of $27,239, the couple had a loss of $966.68. The maximum profit that could have been made was $135,784.60 – this can be found by figuring out maximum capacity and plugging it into the equation (365 days a year times 6 rooms = 2190 rooms available per year).
2. When Maggie started working for Phil and Carol breakeven changed to 582 rooms. Maggie is paid commission of 35% of revenue over $25,000, which means that when more than 294 rooms are sold she makes a commission and the variable cost of the Inn increases. Occupancy rates are projected to be around 30 – 35%, making it a possibility for the Inn to break-even while having Maggie as an employee (maximum capacity is 2190 rooms, times 30% = 657 rooms). However based on last year’s performance of 353 rooms being sold, it is unlikely that Phil and Carol will be able to sell enough units to break-even.
3. The Inn would be able to break-even with