Question

Compute break-even point The Palmer Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $60 a night. Operating costs are as follows. Salaries $5,900 per month Utilities $1,100 per month Depreciation $1,000 per month Maintenance $100 per month Maid Service $14 per room Other costs $28 per room Instructions Determine the inn's break-even point in (a) number of rented rooms per month and (b) dollars. NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" .
(a) Determine the inn's break-even point in number of rented rooms per month Contribution margin per room Rent per room Value Variable cost per room ? Contribution margin per room ? Contribution margin ratio Contribution margin per room Value Rent per room Value Contribution margin ratio ? Fixed costs ? Break-even point in rooms Fixed costs Value Contribution margin per room Value Break-even point in rooms ?
(b) Determine the inn's break-even point in dollars. Break-even point in dollars Break-even point in rooms Value Rent per room Value Break-even point in dollars ? OR Fixed costs Value Contribution margin ratio Value Break-even point in dollars ? When you have completed E5-9, consider the following additional question. 1. Assume that total fixed costs changed to $8,750 per month and the rental rate per room for a night changed to $65. Show impact of these changes have on the calculations.

Answer 1

Solution :

Fixed cost per month                               Variable cost per room

Salaries  $ 5,900                                      Maid service    $ 14

Utilities   $ 1,100                                        Other cost    $ 28

Depreciation $ 1000

Maintenance  $ 100

Total fixed cost per month                      Total variable cost per room      

$ 8,100.00                                                   $ 42.00        

$\text{Contribution margin per room}$

Rent per room                                   $ 60

Total variable cost per room            $ 42

$\text{Contribution margin per room}$ (A)   $ 18.00

Contribution $\text{margin}$ ratio

$\text{Contribution margin per room}$    $ 18

Rent Per room                              $ 60

Contribution $\text{margin}$ ratio (B)      30%

Fixed cost (C)                               $ 8100

 

Break Even points in Rooms,( D = C/A )  = 450

Rent Per room (E)                           $ 60

 

Break Even point in dollars (F = D x E ) =  $ 27000

Fixed cost  ( G = C)                   =      $ 8100

Contribution $\text{margin}$ ratio  ( H  = B ) =  30%

Break Even point in dollars   (I = G/H = F)   $ 27,000

If Fixed Cost changed to $ 8,750 and Room Rent changed to $ 65

Contribution $\text{margin}$ per room

Rent Per room                          $ 65

Total variable cost per room   $ 42

$\text{Contribution margin per room}$ (A) = $23

Contribution $\text{margin}$ ratio

$\text{Contribution margin per room}$  $ 23

Rent Per room   $ 65

Contribution $\text{margin}$ ratio  (B)  = 35% or 35.38%

Fixed cost (C)                           = $8750

Break Even points in Rooms   (D = C/A)   = $ 24,728.26   or     $ 24,700

Fixed cost    ( H = B)                        = 35.38 %

Break Even point in dollars   (I = G/H = F)   =   $24,728.26  or  $ 24,731