The Palmer Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $60 a night. Operating costs are as follows
| Salaries |
$5,900 per month |
| Utilities |
$1,100 per month |
| Depreciation |
$1,000 per month |
| Maintenance |
$100 per month |
| Maid service |
$14 per room |
| Other costs |
$28 per room |
- Determine the inn’s break-even point in
(a) Number of rented rooms per month
(b)Break Even in Dollars
Darshita Changed status to publish July 29, 2020
Answer:
a)
| Salaries- Fixed |
| Utilities- Fixed |
| Depreciation- Fixed |
| Maintenance- Fixed |
| Maid Service- Variable |
| Other Costs- Variable |
b)
Fixed Costs= $5,900 + $1,100 + $1,000 + $100 = $8,100 per month
Variable Costs = $14 + $28 = $42 per rented room
Break Even Point = Fixed Costs/Contribution Margin
Contribution Margin = Sales- Variable Costs
Contribution Margin = $60 – $42 = $18 per room
Break Even Point = $8,100/$18 = 450 rooms
Break Even in Dollars = 450 rooms x $60 = $27,000
Darshita Changed status to publish July 29, 2020
