Question

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			%

Answer 1

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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