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In: Accounting

The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that...

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 $11,950 per month
Utilities 2,100 per month
Depreciation 1,400 per month
Maintenance 750 per month
Maid service 7 per room
Other costs 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

$

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 %

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Part 1
Rent Revenue $           56
Less: Variable Cost
Maid Service $                                                  7
Other Costs $                                                31 $         (38)
Contribution Margin $           18
Contribution Margin Ratio $18/$56 32.14%
Fixed Cost:
Salaries $   11,950
Utilities $     2,100
Depreciation $     1,400
Maintenance $         750
Total Fixed Cost $   16,200
Break Even-No of Rooms $16,200/$18             900
Break Even-Dollars $16,200/32.14% $   50,400
Part 2
Revenue 50 Rooms*30 Days*$56 $   84,000 a
BEP Revenue 900*$56 $   50,400 b
Margin of Safety $   33,600 a-b=c
Margin of Safety % 40.00% c/a

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