Question

Susan​ Meyer, owner/manager of​ Meyer's Motor Court in Wassaga​ Beach, Ontario, is considering outsourcing the daily room cleanup for her motel to​ Duffy's Maid Service. Susan rents an average of 50 rooms for each of 365 nights

​(365×50

equals the total rooms rented for the​ year). Susan's cost to clean a room is

$13.50.

The​Duffy's Maid Service quote is

$18.00

per room plus a fixed cost of

$24,000

for sundry items such as uniforms with the​ motel's name.​ Susan's annual fixed cost for​space, equipment, and supplies is

$65,000.

Which is the preferred process for​ Susan, and​ why?

Based on the given information related to costs for each of the​ options, the crossover point for

Susan=nothing

room nights ​(round your response to the nearest whole

​number).

If the number of room nights is less than the crossover​ point, then

▼

outsourcing

not outsourcing

is the best option available to Susan.

Based on the given room nights that Susan expects to rent

​(18,250​),

the best option is to

▼

not outsource

outsource

.

Answer 1

INDIFFERENCE POINT = (FIXED COST A - FIXED COST B) / (VARIABLE COST B - VARIABLE COST A)

FC A = 65000
VC A = 13.5
FC B = 24000
VC B = 18
INDIFFERENCE POINT(A TO B) = (65000 - 24000) / (18 - 13.5) = 9111

2. IF THE ROOMS ARE LOWER THAN THE CROSSOVER, WE WILL CHOOSE DUFFY’S MAID SERVICE BECAUSE OF THE LOWER FIXED COST.

3. BASED ON 18250 ROOMS, THE BEST CHOICE WOULD BE TO NOT OUTSOURCE AS THE VARIABLE COST IS LOWER.