The Soma Inn is trying to determine its break even point. The inn has 75 rooms t

Question

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 $8,800 per month epreciation Maintenance Maid service Other costs 2,200 per month 1,600 per month 900 per month ? per room 28 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 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 V%

Explanation / Answer

Fixed cost = 8800+2200+1600+900 = 13500

Contribution margin per unit = 52-34 = 18 per room

1) Break even point in rooms = 13500/18 = 750 Rooms

Break even point = 750*52 = 39000

2) Margin of safety = (1500-750)*52 = 39000

Margin of safety ratio = 39000*100/78000 = 50%

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