Question

brak even pou and margin E6.1 (LO 1), AP Service The Soma Inn is trying to determine its break-even point. The inn has rooms that are rented at $60 a night. Operating costs are as follows. Excel Salaries Utilities Depreciation Maintenance Maid service Other costs $10,600 per month 2,400 per month 1,500 per month 800 per month 8 per room 34 per room Instructions a. Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars. b. If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety in dollars and (2) the margin of safety ratio? E6.2 (L01), AP Service in the month of June, Jose Hehale poos, and hair online margin of safety

Answer 1

a.(1) Break-Even point in number of rented rooms per months

Selling price per unit $60

Variable cost per unit $42 ($8 + $34)

Fixed cost $15,300 ($10,600 + $2,400 + $1,500 + $800)

Break-even Point in rooms = Fixed Cost / Contribution Margin per unit

= $15,300 / ($60 - $42)

= 850 Rooms

a.(1) Break-Even point in dollars.

Break-even point in dollars = Break-even Point in rooms * Selling Price per unit

= 850 Rooms * $60

= $51,000.

b. (1) Margin of safety = Budgeted sales - Break-even sales

Budgeted sales = 50 rooms * 30 days * $60

= $90,000

Break-even sales in dollars = $51,000

Margin of safety = $90,000 - $51,000

= $39,000.

Margin of safety ratio = ($39,000 / $91,000) * 100

= 0.4286 or 42.86%.