Managerial/Cost Accounting 1. Jill Hayes operates a bed and breakfast hotel in a
ID: 2585132 • Letter: M
Question
Managerial/Cost Accounting 1. Jill Hayes operates a bed and breakfast hotel in a resort ar Depreciation on the hotel is $60,000 per vear. Jill employs a maintenance perso salary of $32,000 and a cleaning person at an annual salary of $24,000. Rea $10,000 breakfast. Other costs are laundry and cleaning service at a cost the cost of food which is $4.00 per person per night. Instructions ea in the Smoky Mountains. on at an annual l estate taxes are per year. The rooms rent at an average price of $60 per person per night including of $8.0 0 per person per night and (a) Determine the number of rentals and the sales revenue Jill needs to break even using the contribution margin technique. (b) If the current level of rentals is 3,000, by what percentage can re to worry about having a net loss? (c) Jill is considering upgrading the breakfas prices. This will cost an additional $3.00 for food cost ntals decrease before Jill has t service to attract more business and increase s per person per night. Jill feels she can per night. Determine the number of rentals and the sales increase the room rate to $65 per person revenue Jill needs to break even if the changes are madeExplanation / Answer
1 a. Unit Contribution Margin = Rental revenue per person per night - Variable cost per person per night = $ 60 - $ ( 8 + 4) = $ 48
Computation of total annual fixed cost :
Break-even number of rentals = Total Fixed Cost / Unit Contribution Margin = $ 126,000 / $ 48 = 2,625 rentals per year.
Break-even sales revenue = 2,625 x $ 60 = $ 157,500
b. If current level of rentals is 3,000,
Maargin of Safety = ( Actual Rental Revenue - Break-even Sales Revenue) / Actual Sales Revenue * 100 = $ 22,500 / $ 180,000 * 100 = 12.5%
c. Revised contribution margin per rental = $ 65 - $ 15 = $ 50
Revised break-even rentals = $ 126,000 / $ 50 = 2,520 rentals
Sales revenue at break-even = 2,520 x $ 65 = $ 163,800
Depreciation $ 60,000 Salary of maintenance person 32,000 Salary of cleaning person 24,000 Real estate taxes 10,000 Total Fixed Cost $ 126,000Related Questions
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