Reference no: EM131518350

Question: A local authority, whose area includes a holiday resort situated on the east coast, operates, for 30 weeks each year, a holiday home which is let to visiting parties of children in care from other authorities. The children are accompanied by their own house mothers who supervise them throughout their holiday. From six to fifteen guests are accepted on terms of £100 per person per week. No differential charges exist for adults and children. Weekly costs incurred by the host authority are: (£ per guest) Food 25 Electricity for heating and cooking 4 Domestic (laundry, cleaning etc.) expenses 6 Use of minibus 10 Seasonal staff supervise and carry out the necessary duties at the home at a cost of £11000 for the 30-week period. This provides staffing sufficient for six to ten guests per week but if eleven or more guests are to be accommodated, additional staff at a total cost of £200 per week are engaged for the whole of the 30-week period. Rent, including rates for the property, is £4000 per annum and the garden of the home is maintained by the council's recreation department which charges a nominal fee of £1000 per annum. You are required to:

(a) calculate the break-even point and to comment on your figures;

(b) draw the graph to illustrate your answer to (a) above.