Tim Urban, owner/manager of Urban\'s Motor Court in Key West, is considering out
ID: 350459 • Letter: T
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 × 50 equals the total rooms rented for the year). Tim's cost to clean a room is $12.50
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. 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 = (HOW MANY ROOM NIGHTS) (round your response to the nearest whole
number).
Explanation / Answer
Consider the Cross over point for Tim as "X" nights
Tim’s Clean-up cost = X*50*$12.50 = 625X
Fixed Cost for space, equipment and supplies = $60000
Total Cost if Tim does not outsource = $(625X + 60000)
Outsource Operation
Duffy’s Maid Service Cost = X*50*$18 = 900X
Fixed Cost for sundry items such as uniforms = $24000
Total cost if Tim outsource = $(900X + 24000) = $361625
Now calculating cross over point X by equating both the prices:
Total cost if Tim outsource = Total Cost if Tim does not outsource
625X + 60000 = 900X + 24000
X = 130.9 (approx 131)