Question

Exercise 19-1 The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $52 a night. Operating costs are as follows. Salaries Utilities Depreciation Maintenance Maid service Other costs $9,600 per month 2,000 per month 1,200 per month 700 per month 6 per room 28 per room Your answer is partially correct. Try again. Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars. 1. Break-even point in rooms 750 2. Break-even point 38571.4

Answer 1

Part 1

2)

Fixed costs per month = Salaries + Utilities + Depreciation + Maintenance

= 9,600 + 2,000 + 1,200 + 700

= $13,500

Variable costs per room = Maid service + Other costs

= 6 + 28

= $34

Sales revenue per room = $52

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 52 - 34

= $18

Contribution margin ratio = Contribution margin per unit/Selling price per unit

= 18/52

= 34.61538462%

Break even sales in dollars = Fixed cost/Contribution margin ratio

= 13,500/34.61538462%

= $39,000

Part 2

1)

Present sales = 50 x 30 x 52

= $78,000

Margin of safety in dollar sales = Present sales - Break even sales

= 78,000 - 39,000

= $39,000

2)

Margin of safety (%) = Margin of safety/Present sales

= 39,000/78,000

= 50%

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