Billy Bob just paid cash for a run-down bed & breakfast in upstate New York. He plans to refurbish it and then start a heavy duty marketing campaign to bring in the tourists. Your task is to help him figure out how many rooms he has to rent each night to break even. Here are the key assumptions you will need to complete the analysis: -Billy Bob’s cost of just keeping the B & B open for business in $500.00 per day. (Rent and Utilities) -He has 10 rooms available to rent. -He calculates the variable cost of renting a room to be $20.00. (Maid Service, towel and sheet cleaning) -He figures he can rent a room for $125.00 per night. 1. Assuming he rents all 10 rooms, what is Billy-Bob's total fixed cost per day. (Remember fixed cost is the cost that doesn’t vary with sales or production.) 2. Assuming Billy Bob rents all 10 rooms, what is his variable cost for the day? (Remember variable costs changes with sales and production). 3. What is Billy Bob’s total cost for the day when he rents all of his rooms? 4. When Billy Bob rents all of his rooms, what is Billy Bob’s Total Sales (Revenue) for the day? 5. Given his fixed and variable costs, how many rooms does he need to rent each day to break even? (Be sure to show the break-even formula in your response.) 6. What is Billy Bob’s total daily profit when he rents all of his rooms? 7. If Billy Bob is only renting 8 rooms per day, should Billy Bob keep or sell the Bed & Breakfast? Why? Quantify your response. 8. What is Billy Bob’s total variable cost if he rents 8 rooms?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Billy Bob just paid cash for a run-down bed & breakfast in upstate New York. He plans to refurbish it and then start a heavy duty marketing campaign to bring in the tourists. Your task is to help him figure out how many rooms he has to rent each night to break even. Here are the key assumptions you will need to complete the analysis: -Billy Bob’s cost of just keeping the B & B open for business in $500.00 per day. (Rent and Utilities) -He has 10 rooms available to rent. -He calculates the variable cost of renting a room to be $20.00. (Maid Service, towel and sheet cleaning) -He figures he can rent a room for $125.00 per night.

1. Assuming he rents all 10 rooms, what is Billy-Bob's total fixed cost per day. (Remember fixed cost is the cost that doesn’t vary with sales or production.)

2. Assuming Billy Bob rents all 10 rooms, what is his variable cost for the day? (Remember variable costs changes with sales and production).

3. What is Billy Bob’s total cost for the day when he rents all of his rooms?

4. When Billy Bob rents all of his rooms, what is Billy Bob’s Total Sales (Revenue) for the day?

5. Given his fixed and variable costs, how many rooms does he need to rent each day to break even? (Be sure to show the break-even formula in your response.)

6. What is Billy Bob’s total daily profit when he rents all of his rooms?

7. If Billy Bob is only renting 8 rooms per day, should Billy Bob keep or sell the Bed & Breakfast? Why? Quantify your response.

8. What is Billy Bob’s total variable cost if he rents 8 rooms?