Question

The Carla Vista Acres Inn is trying to determine its break-even point during its off-peak season. The Inn has 50 rooms that it rents at $40 a night. Operating coats are as follows (show work)
salaries $5,000 per month

Utilities $1,100 per month

Depreciation $1,200 per month

Maintenance $780 per month

Maid Service $7 per month

Other costs $13 per month


1. Determine the Inn’s break-even point in number of rented rooms per month
2. Determine the Inn’s break-even point in dollars.

Answer 1

Solution and Explanation:

 Breakeven point = Fixed cost divide by Contribution margin

Contribution margin = Sales minus Variable cost.

Fixed cost

Particular           Amount

Salaries                  $5000

Utilities                   $1100

Depreciation   $1200

Maintenance   $780

Total Fixed cost = $8,080.

Variable cost =Maid services plus Other cost = $7 plus $13 = $20

Contribution = $40 minus $20 = $20.

Breakeven point in number = $8080 divide 20 = 404 rented rooms per month.

Breakeven point in $ = Breakeven point rented rooms × rent cost.

=> 404 rooms multiply $40 = $16,160.