Question

On the twentieth day of the month, room sales at the Motor Lodge Motel exceeded its breakeven point for the month. Revenue generated by room sales during the remaining days of the month will:_______.a. decrease in proportion to the additional room sales.b. cover the fixed costs associated with those additional room sales.c. be pure profit for the motel.d. increase at a faster rate than the costs associated with those sales.

Answer 1

Answer:

D) increase at a faster rate than the costs associated with those sales.

Explanation:

If the break even point was reached during the 20th day of the month, then any revenue generated during the remaining 10-11 days will increase net profits. The amount of net profit increase will be determined by the contribution margin of each service provided. The contribution margin = net sales - variable costs. Since the fixed costs have already been covered, the contribution margin will be equal to the net profit.