2. Andrew rents rooms in his hotel for an average of $92 per night. The variable cost per rented room is $37. His fixed costs are $52,000 per month. How many rooms does he have to rent per month in order to break even?

In this case when you do the calculations, your answer will not be a whole number there will be a decimal. In break even calculations, you must always round your answer up to the next highest whole number, because you cannot sell a fraction of an item and if you round down, you will not have sold enough to break even. So even if calculate your answer to be 12.05 units, you would round up to 13 units.

Now, lets try to break down the various costs business owners have into Fixed Costs and into Variable Costs. You may want to re-read the Lecture and/or the textbook to refresh your memory on this one.

Julia owns a sub sandwich shop and has the following costs each month:

• Labor costs (management & workers) = $7,000
• Insurance = $900
• Rent = $800
• Utilities = $300
• Average cost of ingredients/packaging for each sub = $1.15

Once you have classified them into FIXED and VARIABLE costs, complete the following:

5. Julia decides to reposition her sub shop as upscale with fresher meats and vegetables, along with premium packaging for the subs. Her new price point is $10 per sub, but her variable costs have risen to $4.22 per sub. If all other costs remain the same, what is the break-even point now?