Please help Tim Urban, ownenimanager of Urban\'s Moter Court in Kay West, is con
ID: 395199 • Letter: P
Question
Please help
Tim Urban, ownenimanager of Urban's Moter Court in Kay West, is considering cutsourcing the daily room claanup for his motel to Durty's Maid Servics. Tim rents an average of 50 rocms forach of 365 nights (365 x 50 equals the total rooms rantad for the ynarTim's cost to claan a rcom is S13.50. Tha Durity's Maid Service cuota is $18.50 per roam plus a fooad cost af $24,000 iar sundry itoms surh as unifoms with the ratr's nama. Tim's anual fixod cast far spac, equipmant, and supplins is $86,c00 Based on the given infomalion relaled to coets for each of lhe oplions, the crossover peint Ti 8200 room nights (round your response lo the neareat whote number If the number of room nights is less than the crossover point, then unfms wichts is the best option available to Tim. not outsourcing outsaurcingExplanation / Answer
Given values:
Number of rooms = 50
Number of nights = 365
Total rooms rented for the year = 365 x 50 = 18,250 rented rooms
Tim’s cleaning cost = $13.50 per room
Tim’s fixed cost = $65,000
Duffy’s cleaning cost = $18.50 per room
Duffy’s fixed cost = $24,000
Solution:
(a) Based on the given information, the crossover point for Tim is calculated as below:
Let the number of rooms = R
Therefore, at the crossover point, total costs of Tim and Duffy will be equal.
Total cost of Tim = Total cost of Duffy
Total cost = Fixed cost + Variable cost
Total cost = Fixed cost + (Per room cleaning cost x Number of rooms)
At crossover point,
$65,000 + $13.50 R = $24,000 + $18.50 R
5 R = 41,000
R = 8,200
Crossover point for Tim = 8200 room nights
(b) If the number of room nights is less than the crossover point, then the best option can be found using the below example:
Suppose, Number of room nights = 8000
Then, for 8000 rooms,
Total cost for Tim (not outsourcing) = $65,000 + ($13.50 x 8000) = $173,000
Total cost for Duffy (outsourcing) = $24,000 + ($18.50 x 8000) = $172,000
Conclusion: If the number of room nights is less than the crossover point, then outsourcing is the best option available to Tim.