Question

The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $56 a night. Operating costs are as follows.

Salaries		$8,350	per month
Utilities		2,100	per month
Depreciation		1,400	per month
Maintenance		750	per month
Maid service		8	per room
Other costs		34	per room

Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars.

1.		Break-even point in rooms
2.		Break-even point		$	per month

  

  

If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety in dollars and (2) the margin of safety ratio? (Round ratio to 0 decimal places, e.g. 10%.)

1.		Margin of safety		$
2.		Margin of safety ratio			%

Answer 1

The answer has been presented in the supporting sheet. For detailed answer refer to the supporting sheet.

1 Answer 2 3 Part 1) 4 Break even point in rooms 5 = Fixed cost / contribution margin per room 6 = (8350+2100+1400+750)/(56-8-34) 7 = 900 Rooms 8 9 Break even point per month in dollars 10 = break even rooms * revenue per room 11 = 900 * 56 12 = $ 50400 13 14 Part 2) 15 Margin of safety in dollars 16 = Total revenue - break even revenue 17 = ( 50*30*56) - 50400 18 = $ 33600 19 20 Margin of safety ratio 21 = Margin of safety in dollars / total revenue 22 = 33600 /(50*30*56) *100 23 = 40% 24