Problem: Ladi Winbush operates a hotel in Alaska. Depreciation on the hotel is $

Question

Problem: Ladi Winbush operates a hotel in Alaska. Depreciation on the hotel is $60,000 per year. Ladi employs a maintenance person at an annual salary of $32,000 and a cleaning person at an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $8.00 per person per night and the cost of food which is $4.00 per person per night. What is the break-even point in units and dollars? 

Explanation / Answer

Fixed Cost Depreciation $60,000 Maintenance person salary $32,000 Cleaning person salary $24,000 Real Estate Taxes $10,000 Total Fixed Expense $126,000 Variable Cost Laundry and cleaning service $8.00 Cost of food $4.00 Total Variable cost $12.00 Room Rent per person $60.00 Less: Variable Cost $12.00 Contribution per person $48.00 Breakeven Point = Fixed cost ÷ Contribution per person = 126,000 ÷ 48 = 2625 person / Night Breakeven point in Dollars = (Fixed cost ÷ Contribution per person) x Room rent per person / night = (126,000 ÷ 48) x $60 = $157,500

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