Question

The 100-room limited-service Pepper Inn has an ADR of $75 and variable costs per room sold of $15. Assume there is no other sales activity. Its monthly fixed costs total $120,000.
How many rooms must be sold to break even? (please round up the number). (1 points)
What day of the month does it break even if it averages a paid occupancy percentage of 85%? Assume all rooms are available for sale each day.

Answer 1

Answer:

a. $2,000

b. 23.53 days

Explanation:

a. Break even point = Fixed cost ÷ Contribution per unit

Contribution per unit = Selling price per unit- variable cost per unit

= $75 - $15

= $60

Break even point = $120,000 ÷ $60

= $2,000

b. Rooms occupied per day = 100 × 85%

= 85 rooms

Days to break even = Break even point ÷ Rooms occupied per day

= $2,000 ÷ 85

= 23.53 days