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Profit and Break-Even Analysis of Bed and Breakfast Business

Phil and Carol eloped (at 59 and 46) to New Mexico and then told the kids they were moving there permanently. After 5 years in downtown Albuquerque, Carol made one of her frequent flights east to visit family. She returned to find that Phil had rented out a bedroom, declaring they were in the "Bed and Breakfast" business. In a year, they expanded to a pricy suburb by buying/renovating a larger estate with 6 rooms plus one apartment.

Phil cooked breakfast; Carol bought; they lived in apartment and frequently hosted guests for cocktail hour. The average life-span for B&B owners is about 4 years. After about 3 years, Phil was tired of doing breakfasts. He and Carol build their own home next door, hired Maggie to run the B&B, and pitched in when needed.

You have been asked to help them see where this business is financialy. Use the following information to prepare a two-page analysis.

Room prices 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 for breakfast which is variable (last year = $3,729).

Maggie's salary consists of a base of $7500 plus a commission of 35% of revenue over $25.000, and free room (the separate suite).


1) Last year, (before Maggie), what was breakeven? Did they make a profit? What was the maximum profit that could be made?

2) With Maggie, what is the new breakeven? Is this a realistic possibility?

3) What should they do?

Solution Preview

See attached Excel file.

1. Break even:$31105/-No they did not make profit.The operating loss is $968/-

2. With Maggie, the new BEP is $42501/-. In my opinion, it is not the realistic possibility as the sales revenue needs to be increased by 41.67% ((42501-30000)/30000)*100.

I have written some suggestions about this business.

1. It is better that Phil cook the breakfast and not to employ the Maggie, because by employing Maggie, the fixed costs of the business will ...

Solution Summary

A profit and break-even analysis of bed and breakfast businesses are examined.