Question

The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $52 a night. Operating costs are as follows. Salaries $9,000 per month Utilities 2,100 per month Depreciation 1,500 per month Maintenance 900 per month Maid service 6 per room Other costs 28 per room Your answer is partially correct. Try again. 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 $ LINK TO TEXT Your answer is partially correct. Try again. 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 % Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT

Answer 1

Answer:

Contribution Margin per room:

Room rent $52

(-) Maid service ($6)

(-) Other Costs ($28)

Contribution margin per room = $18

Contribution Ratio = ($18 ÷ $52) × 100

                               = 34.61%

Fixed Costs:

= Salaries + Utilities + Depreciation + Maintenance

= $9,000 + $2,100 + 1,500 + 900

= $ 13,500

1. Break-Even point in Rooms

= Fixed Cost ÷ Contribution margin per room

= $13,500 ÷ 18

= 750

2. Break-Even point (in Dollars)

= Fixed Cost ÷ Contribution margin ratio

= $13,500 ÷ 34.61%

= $39,006

Margin of safety :

Expected rental revenue = 1,500 rooms × $52

                                          = $78,000

Margin of safety in dollars = $78,000 - $39,006

                                            = $ 38,994

Margin of safety ratio = [ $38,994 ÷ $78,000 ] × 100

                                    = 49.99%