Question

BREAKEVEN ANALYSIS 6. You own a 10 bedroom Bed and Breakfast With the following, $ 12,000 per month mortgage payment $ 4,000 per month for the gardener and housekeeper $ 9.00 per room for soap, towels etc. $ 20.00 per room desired Net Profit Assume a 30 day month

SOLVE FOR THE FOLLOWING: a. The selling price per room per night AND the monthly breakeven point. b. The monthly breakeven point if you raise the selling price calculated in A above by $12.00. c. The monthly breakeven point if you lower the selling price calculated in A above by $3.00. d. Which of the 3 prices would you charge? What factors should you consider? e. What would your selling price and breakeven point be if you want to pay yourself $50,000 per year?

Answer 1

Req a Calculation of Selling Price per room per night Number of Room days = 10 Bedrooms*30 Days = 300 Room days Particulars Monthly Mortgage Payment Gardener Housekeeper Expenses ($ 9*300 Rooms) Total Cost Divided by Number of room days Cost per room Add. Desired NP Selling Price per room per night Amount $ 12,000 $ 4,000 $ 2,700 $ 18,700 300 $ 62.33 $ 20.00 $ 82.33 Monthly Break-even point =Fixed Expenses/Contribution per room day =$ 16,000/($ 82.33 - $ 9) = 218 Room days (approx) Req b Monthly breakeven point if you raise the selling price calculated in A above by $12.00 New Selling Price per room per night $ 94.33 =Fixed Expenses/Contribution per room day =$ 16,000/($94.33 - $9) = 187.50 or 188 Room days Reqc Monthly breakeven point if you lower the selling price calculated in A above by $3.00 New Selling Price per room per night $ 79.33 =Fixed Expenses/Contribution per room day =$ 16,000/($ 79.33 - $ 9) = 228 Room days (approx) Reqd The answer depends on many factors such as demand, position in industry and timing. Breakeven doesn't take into account demand so it is not accurate to say charge the highest price because you will breakeven faster and make a profit - the problem is that if no one is willing to pay that price, then you will never breakeven. So with the example above, you would say I'm going to charge $ 94.33 per room per night because it's the highest price but if you have a lot of competition, an elastic consumer market or there isn't any demand at that price, then you will not breakeven and it is not the right price. Analyze your market demand first and then decide on the price. Req e Selling Price and Breakeven Point be if you want to pay yourself $50,000 per year Monthly payout ($ 50,000/12) $ 4,167 per month Option A) Charge Price $ 82.33 =Fixed Expenses/Contribution per room day =$ 20,168/($ 82.33 - $ 9) = 275.03 or 275 Room days (approx) Option B) Charge Price $ 94.33 =Fixed Expenses/Contribution per room day =$ 20,168/($94.33 - $9) = 236.35 or 237 Room days (approx) Option C) Charge Price $ 79.33 =Fixed Expenses/Contribution per room day =$ 20,168/($ 79.33 - $ 9) = 286.76 or 287 Room days (approx) Let me know, if you have any questions over comments section, rate positive if you are satisfied with the solution