Question

Compute break-even point 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 Instructions Determine the inn's break-even point in (a) number of rented rooms per month and (b) dollars. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .

(a) Determine the inn's break-even point in number of rented rooms per month Contribution margin per room Rent per room Value Variable cost per room ? Contribution margin per room ? Contribution margin ratio Contribution margin per room Value Rent per room Value Contribution margin ratio ? Fixed costs ? Break-even point in rooms Fixed costs Value Contribution margin per room Value Break-even point in rooms ?
(b) Determine the inn's break-even point in dollars. Break-even point in dollars Break-even point in rooms Value Rent per room Value Break-even point in dollars ? OR Fixed costs Value Contribution margin ratio Value Break-even point in dollars ? When you have completed E5-9, consider the following additional question. 1. Assume that total fixed costs changed to $8,750 per month and the rental rate per room for a night changed to $65. Show impact of these changes have on the calculations.

Answer 1

Fixed cost per month Variable cost per room

Salaries $ 5,900 Maid service $ 14

Utilities $ 1,100 Other cost $ 28

Depreciation $ 1000

Maintenance $ 100

Total fixed cost per month Total variable cost per room

$ 8,100.00 $ 42.00

`\text{Contribution margin per room}`

Rent per room $ 60

Total variable cost per room $ 42

`\text{Contribution margin per room}` (A) $ 18.00

Contribution
`\text{margin}` ratio

`\text{Contribution margin per room}` $ 18

Rent Per room $ 60

Contribution
`\text{margin}` ratio (B) 30%

Fixed cost (C) $ 8100

Break Even points in Rooms,( D = C/A ) = 450

Rent Per room (E) $ 60

Break Even point in dollars (F = D x E ) = $ 27000

Fixed cost ( G = C) = $ 8100

Contribution
`\text{margin}` ratio ( H = B ) = 30%

Break Even point in dollars (I = G/H = F) $ 27,000

If Fixed Cost changed to $ 8,750 and Room Rent changed to $ 65

Contribution
`\text{margin}` per room

Rent Per room $ 65

Total variable cost per room $ 42

`\text{Contribution margin per room}` (A) = $23

Contribution
`\text{margin}` ratio

`\text{Contribution margin per room}` $ 23

Rent Per room $ 65

Contribution
`\text{margin}` ratio (B) = 35% or 35.38%

Fixed cost (C) = $8750

Break Even points in Rooms (D = C/A) = $ 24,728.26 or $ 24,700

Fixed cost ( H = B) = 35.38 %

Break Even point in dollars (I = G/H = F) = $24,728.26 or $ 24,731