Question

The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $56 a night. Operating costs are as follows. $10,000 per month Salaries 2,100 per menth Utilities Depreciation 1,500 per month 800 per month Maintenance 7 per room Maid service 31 per room Other costs Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars 1. Break-even point in rooms 2. Break-even point 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? (Round ratio to 0 decimal places, e.g. 10.) 1. Margin of safety 2. Margin of safety ratio

Answer 1

Requirement 1

Break Even point in rooms	800
Break Even point	$   44,800.00

Working

A	Unit Selling price	$           56.00
B	Unit Variable cost	$           38.00
C=A-B	unit Contriution margin	$           18.00
D	Total Fixed Cost	$   14,400.00
E=D/C	Break Even point in units	800
F=E x A	Break Even point in Dollars	$   44,800.00

.

Total Fixed cost
Salaries	$    10,000.00
Utilities	$       2,100.00
Depreciation	$       1,500.00
Maintenance	$          800.00
Total Fixed cost	$    14,400.00

.

Variable costs per Room
Maid service	$               7.00
Other cost	$             31.00
Variable costs per Room	$             38.00

Requirement 2

Margin of safety	$   39,200.00
Margin of safety ratio	47%

Working

Actual sales (30 x 50 x $56)	$   84,000.00
Break even sales	$   44,800.00
Margin of safety	$   39,200.00
Margin of safety ratio	47%