Question

Tim Urban, owner/manager of Urban's Motor Court in Key West, is considering outsourcing the daily room cleanup for his motel to Duffy's Maid Service. Tim rents an average of 50 rooms for each of 365 nights (365 x 50 equals the total rooms rented for the year). Tim's cost to clean a room is $13.50. The Duffy's Maid Service quote is $18.50 per room plus a fixed cost of $24,000 for sundry items such as uniforms with the motel's name. Tim's annual fixed cost for space, equipment, and supplies is $60,000 Based on the given information related to costs for each of the options, the crossover point for Tim = 7200 room nights (round your response to the nearest whole number). If the number of room nights is less than the crossover point, then is the best option available to Tim.

Answer 1

Answer a: Tim urban

Inhouse cleaning

Fixed cost= 60,000

Variable cost= 13.5 per unit

Let the total unit produced be x, then the total cost will be Y

Total cost= variable per piece*x + Fixed cost

Y= 13.5*x + 60,000

Outsource maid service

Fixed cost= 24,000

Variable cost= 18.5 per unit

Let the total unit produced be x, then the total cost will be Y

Total cost= variable per piece*x + Fixed cost

Y= 18.5*x + 24,000

The crossover point between both ways

13.5*x + 60,000 = 18.5*x + 24,000

X= 7200 rooms nights

Answer b: if room nights is less than cross over point , then Outsource maid service is best option. Because it has lower fixed cost

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Answer 2

Thank you!!