Answer:
The Soma Inn
a. Determination of the inn's break-even point:
1. number of rented rooms per month:
= Fixed Costs/Contribution per room
= $14,400/$18
= 800 rooms
2. dollars:
= Fixed Costs/Contribution margin ratio per room
= $14,400/0.3
= $48,000
2. Renting average of 50 rooms per day,
a) Monthly margin of safety in dollars
Current Sales = 50 rooms x $60 x 30 days = $90,000
Break-even Sales = $48,000
Margin of safety = Current Sales minus Break-even Sales
= $42,000 ($90,000 - $48,000)
b) Margin of safety ratio:
= Margin of safety/Current Sales x 100
= $42,000/$90,000 x 100
= 46.67%
Explanation:
a) Data and Calculations:
Fixed costs:
Salaries $9,700 per month
Utilities 2,700 per month
Depreciation 1,300 per month
Maintenance 700 per month
Total $14,400 per month
Variable costs:
Maid service 8 per room
Other costs 34 per room
Total $42 per room ($3,150 = $41 x 75 rooms)
Rent $60 per room ($4,500 = $60 x 75 rooms)
Contribution per room = $18 ($60 - $42)
Contribution per night = $1,350 (75 x $18)
Contribution margin ratio per room = Contribution per room margin/Rent per room x 100
= $18/$60 x 100
= 0.3 or 30%
The Soma Inn's contribution margin per room is equal to the rent per room minus the variable cost per room. Similarly, the contribution margin ratio per room is the contribution margin per room divided by the rent per room, and then multiplied by 100.
The Soma Inn's margin of safety is the difference between the rent per month and the break-even sales. The Margin of safety ratio for the Inn is the ratio of current sales minus the breakeven sales, and then divided by current sales, multiplied by 100.
c) Once the purchases of merchandise have been computed, to compute the cost of goods sold becomes easier. The cost of goods sold for Ahmed Company is the difference between the cost of goods available for sale and the ending inventories of merchandise.
