1) Harrison Hotels is considering adding a spa to its current facility in order
ID: 398015 • Letter: 1
Question
1) Harrison Hotels is considering adding a spa to its current facility in order to improve its list of amenities. Operating the spa would require a fixed cost of $27600 a year. Variable cost is estimated at $38 per customer. The hotel wants to break even if 13000 customers use the spa facility. What should be the price of the spa services?
$ (give your answer to the nearest penny)
2) See-Clear Optics is considering producing a new line of eyewear. After considering the costs of raw materials and the cost of some new equipment, the company estimates fixed costs to be $43200 with a variable cost of $44 per unit produced.
2.1 If the selling price of each new product is set at $105, how many units need to be produced and sold to break even? units
2.2 If the selling price of the product is set at $82 per unit, See-Clear expects to sell 2800 units. What would be the total contribution to profit from this product at this price? $
2.3 Marketing estimates that at a price of $107, a near-optimal sales quantity of 2000 will be realized. What is the contribution to profit at this price point? $
3) Tasty Ice Cream is a year-round take-out ice cream restaurant that is considering offering an additional product, hot chocolate. Considering the additional machine it would need plus cups and ingredients, it estimates fixed costs to be $191 per year and the variable cost to be $0.24. If it charges $0.98 for each hot chocolate, how many hot chocolates does it need to sell in order to break even?
Explanation / Answer
1) QBE= FC/ (SP-VC)
13,000= $27,600/ (SP- $38)
13,000(SP-38)= 27,600
13,000SP- 13,000*38= 27,600
13,000SP- 494,000= 27600
13000SP= 27600+494,000
13000SP= 521600
SP= 521600/ 13000 = 40.123
Hence the price of the spa services should be $40.123
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