Exercise 19-1 The Soma Inn is trying to determine its break-even point. The inn
ID: 2580975 • Letter: E
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 $9,900 per month Utilities 2,000 per month Depreciation 1,600 per month Maintenance 900 per month Maid service 6 per room Other costs 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 $ LINK TO TEXT 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 %
Explanation / Answer
Fixed Costs
Salaries $ 9900 per month
Utilities $ 2000 per month
Depreciation $ 1600 per month
Maintenance $ 900 per month
Total Fixed Costs = $14400 per month
Variable Costs per Room
Maid service $6 per room
Other costs $28 per room
Total Variable Costs per Room = $34 per room
Contribution margin = 52 - 34 = $18
Break even point = Fixed cost / contribution margin = 14400 / 18 = $ 800
& Safety in dollars = $ 800 x $ 52 = $ 41600
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