Question

The Ivanhoe Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $56 a night. Operating costs are as follows: Salaries $5,300 per month Utilities $1,300 per month $1,100 per month Depreciation Maintenance $3,892 per month Maid service $10 per room Other costs $18 per room Determine the inn's break-even point in number of rented rooms per month. Break-even point rooms LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR EXERCISE Determine the inn's break-even point in dollars. Break-even point in $4

Answer 1

Contribution margin = Sales price - Variable cost per unit

Contribution margin = $56 - ($10 + $18)

Contribution margin = $28

Fixed costs = $5,300 + $1,300 + $1,100 + $3,892 = $11,592

1) Break-even point = Fixed costs / Contribution margin = $11,592 / $28 = 414 rooms

2) Break -even point in dollars = 414 rooms × $56 = $23,184