Question

The Oriole Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $100 a night. Operating costs are as follows:
Salaries $7,500 per month
Utilities $1,500 per month
Depreciation $1,300 per month
Maintenance $1,760 per month
Maid service $24 per room
Other costs $46 per room
Determine the inn’s break-even point in number of rented rooms per month.

Answer 1

Answer:

Break-even point in units= 402 rooms a month

Explanation:

Giving the following information:

The inn has 50 rooms that it rents at $100 a night. Operating costs are as follows:

Salaries $7,500 per month

Utilities $1,500 per month

Depreciation $1,300 per month

Maintenance $1,760 per month

Maid service $24 per room

Other costs $46 per room

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

Total fixed costs= salaries + utilities + depreciation + maintenance

Total fixed costs= $12,060

Unitary variable cost= 24 + 46= $70

To calculate the break-even point in units, we need to use the following formula:

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

Break-even point in units= 12,060/ (100 - 70)

Break-even point in units= 402 rooms a month