Question

The Cullumber Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $65 a night. Operating costs are as follows:

Salaries $7,500 per month
Utilities $1,000 per month
Depreciation $1,100 per month
Maintenance $2,940 per month
Maid service $24 per room
Other costs $46 per room

Required:
Determine the innâs break-even point in number of rented rooms per month.

Answer 1

Results are below.

Step-by-step explanation:

First, we need to calculate the total fixed cost and the total unitary variable cost:

Total fixed cost= salaries + utilities + depreciation + maintenance

Total fixed cost= 7,500 + 1,000 + 1,100 + 2,940

Total fixed cost= $12,540

Total unitary variable cost= 24 + 46

Total unitary variable cost= $70

As the unitary contribution margin is negative (65 - 70), the company will never break even. I will assume that the selling price is incorrect, and the room costs $85:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 12,450 / (85 - 70)

Break-even point in units= 830