Phil and Carol eloped (at 59 and 46) to New Mexico and then toldthe kids they were moving there permanently. After 5 years indowntown Albuquerque, Carol made one of her frequent flights eastto visit family. She returned to find that Phil had rented out abedroom, declaring they were in the "Bed and Breakfast" business.In a year, they expanded to a pricy suburb by buying/renovating alarger estate with 6 rooms or apartments. Phil cooked breakfast;Carol bought; they lived in a separate suite and frequently hostedguests for cocktail hour. The average life-span for B&B ownersis about 4 years. After about 3 years, Phil was tired of doingbreakfasts. He and Carol built their own home next door, hiredMaggie to run the B&B, and pitched in when needed. You havebeen asked to help them see where this business is financially. Usethe following information to prepare a two-page analysis. Roomprices range, but average $85 per night. Last year without Maggie,they generated about $30,000 in revenue. Expenses this year (e.g.,advertising, telephone, mortgage, repairs/maintenance, utilities,Maggie's base salary) are generally fixed ($34,739) except forbreakfast which is variable (last year = $3,729). Maggie's salaryconsists of a base of $7500 plus a commission of 35% of revenueover $25,000, and a free room (the separate suite).
Questions:
Last year (before Maggie) what was breakeven (in room/nights and$s)? Did they make a profit? What was the maximum profit that couldbe made?
With Maggie, what is the new breakeven? Is this a realisticpossibility? What should they do?
Note: Your analysis and response to the above questions shouldbe a minimum of 500 words
