A local Inn is trying to determine its breakeven point. The Inn has 75 rooms tha

Question

A local Inn is trying to determine its breakeven point. The Inn has 75 rooms that are rented at $50 per night. Operating costs are as follows:

Salaries - $8,500 per month
Utilities - $2,000 per month
Depreciation - $1,000 per month
Maintenance - $500 per month
Maid Service - $5 per room
Other Costs - $33 per room


a) Determine the Inn's breakeven 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

Explanation / Answer

The contribution margin per room is 50-5-33= 12. Fixed costs are 8,500+2,000+1,000+500= 12,000 So breakeven is 12,000/12= 1,000 rooms or 50*1000= $50,000. 50 rooms a day is 1,500 per month. 1,500*50= 75,000 So the margin of safety is 75,000- 50,000= 25,000 Ratio is 25,000/75,000= 1/3= 33.3%

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