Exercise 19-1 The Soma Inn is trying to determine its break-even point. The inn

Question

Exercise 19-1 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 Salaries Utilities Depreciation Maintenance Maid service Other costs $10,100 per month 2,900 per month 1,500 per month 800 per month 7 per room 31 per room 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 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

Explanation / Answer

Variable cost per room = 31+7 = 38 per room

Contribution margin per room = 56-38 = 18 per room

Break even point = 15300/18 = 850 room

Break even sales = 850*56 = 47600

1) Margin of safety = (50*30-850)*56 = $36400

Margin of safety ratio = 36400*100/84000 = 43%

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