Question

*Exercise 5-9 (Video) The Crane Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $50 a night. Operating costs are as follows: Salaries Utilities Depreciation Maintenance Maid service Other costs $5,500 per month $1,500 per month $900 per month $340 per month $10 per room $20 per room Determine the inn's break-even point in number of rented rooms per month. rooms Break-even point Determine the inn's break-even point in dollars. Break-even point in Question Attempts: 0 of 3 used

Answer 1

Variable cost per room = Maid service per room + Other costs per room
Variable cost per room = $10.00 + $20.00
Variable cost per room = $30.00

Fixed costs = Salaries + Utilities + Depreciation + Maintenance
Fixed costs = $5,500 + $1,500 + $900 + $340
Fixed costs = $8,240

Contribution margin per room = Rent revenue per room - Variable cost per room
Contribution margin per room = $50.00 - $30.00
Contribution margin per room = $20.00

Breakeven point in number of rooms = Fixed costs / Contribution margin per room
Breakeven point in number of rooms = $8,240/ $20.00
Breakeven point in number of rooms = 412

Breakeven point in dollars = Breakeven point in number of rooms * Rent revenue per room
Breakeven point in dollars = 412 * $50.00
Breakeven point in dollars = $20,600