The Carla Vista Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $70 a night. Operating costs are as follows: Salaries $6,000 per month Utilities $1,400 per month Depreciation $1,300 per month Maintenance $3,228 per month Maid service $14 per room Other costs $28 per room
Part 1) Determine the inn’s break-even point in number of rented rooms per month.
Part 2) Determine the inn’s break-even point in dollars.
Fixed cost = Salaries + Utilities + Depreciation + Maintenance
= 6,000+1,400+1,300+3,228
= $11,928
Variable cost per room = Maid service + Other costs
= 14+28
= $42
Room rent per night = $70
Contribution room per night = Room rent per night-Variable cost per room
= 70-42
= $28
Part 1
Break even point in number of rented rooms per month = Fixed cost / Contribution room per night
= 11,928/28
= 426 rented rooms per month
Part 2
Contribution margin ratio = Contribution room per night / Room rent per night
= 28/70
= 40%
Break-even point in dollars = Fixed cost / Contribution margin ratio
= 11,928/40%
=$29,820
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The Carla Vista Acres Inn is trying to determine its break-even point during its off-peak season....
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