Breakeven Question

Question

Sally’s Skate Company offers roller skating lessons. Her facility is her only fixed cost, at $800/month. Her instructor rate (a variable cost) is $60 per hour. She has no other costs. If each 1-hour lesson costs a skater $20, how many lessons does she need to break even for the month?

Answer 1

Not too sure about the above answer...

In any event. Breakeven is equal to: Fixed Costs/Selling Price less your variable costs.

In this scenario fixed costs are the $800 per month. Selling price is the $60 (which is not the variable cost per your question) rather the $20 would be considered the variable cost. Bear in mind if it were the adverse there would never be a breakeven as it could theoretically not happen.

So, 800/60-20 or 800/40 or 20 lessons.

To check; 20 lessons at 60 equals 1,200

20 lessons at 20 equals (400) * this is in brackets indicating a negative integer as this is the VC.

=800

(800) * Fixed costs

0

Answer 2

To breakeven, Cost = Revenue

Let x = the number of one hour lessons

C = 800+60x

R = 20x

Setting them equal

800+60x = 20x

800 = -40x

This will give a negative value for x which is not a reasonable solution. It seems like the variable cost may be too high. Should this really be $6 instead of $60? Something isn't right with this problem.