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Mazyrski [523]
3 years ago
8

The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $60 a night. Operating costs a

re as follows:
Salaries $9,700 per month
Utilities 2,700 per month
Depredation 1,300 per month
Maintenance 700 per month
Maid service 8 per room
Other costs 34 per room

Required:
a. Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.
b. If the Inn plans to renting an average of 50 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety dollars and (2) the margin of safety ratio?
Business
1 answer:
Juli2301 [7.4K]3 years ago
8 0

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.

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Answer: Option (a) is correct.

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Correct option: Aggregate demand shifts right.

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Total Variable Cost [TVC] is the total production expenditure, done on variable factors of production (Eg - on raw material). It is zero at zero level of output,  directly related to level of output thereafter. It first increases at a decreasing rate, then increases at an increasing rate. So, it's curve is inverse S upward sloping curve from origin.

Total Cost [TC] is the total cost incurred on all factors of production (fixed & variable). It is sum of TVC & TFC. As TFC is constant at all levels of output, TC changes due to change in TVC. So, TC is also directly related to output level, first increases at increasing rate & then at decreasing rate. Hence, it is also a inverse S upward sloping curve. But, it also includes constant TFC. So, the curve has intercept on Y axis = TFC (it doesn't start from origin).

4 0
3 years ago
The book balance in the checking account of Kyri Enterprises as of November 30 is $2,964. The bank statement shows an ending bal
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Answer:

1)

reconciliation of bank balance:

bank balance $2,525

+ deposits in transit 11/29 $125

+ deposits in transit 11/30 $200

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+ error on Check N. 321 $20

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adjusted checking account $2,674

2)

To correct the error on Check N. 321

Dr Cash 20

    Cr Accounts payable 20

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Dr Accounts receivable 185

    Cr Cash 185

To record ATM withdrawal

Dr Drawing - Susan Kyri 100

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4 0
3 years ago
Sheffield Company purchases $50,300 of raw materials on account, and it incurs $63,900 of factory labor costs. Supporting record
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Answer:

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Explanation:

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J1 : Raw Materials

Work -in-process $27,100 (debit)

Raw Materials (credit)

J2 : Labor

Work -in-process $40,100 (debit)

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J3 : Overheads

Work-in-process  $64,160 (debit)

Overhead $64,160 (credit)

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J1 : Raw Materials

Work -in-process $23,200 (debit)

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J2 : Labor

Work -in-process $23,800 (debit)

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J3 : Overheads

Work-in-process  $38,080 (debit)

Overhead $38,080  (credit)

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Work-in-process - Finishing Department  $38,080 (debit)

Overhead $102,240  (credit)

3 0
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= $63,401

Therefore, The Year 4 cash flow is $63,401.

3 0
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