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In: Accounting
Question 1 (10 marks) Rick’s Motel has the following monthly costs in the first five months...
Question 1
Rick’s Motel has the following monthly costs in the first five months of 2019:
Month Rooms Rented Costs
January 150 $20,250
February 160 21,000
March 130 18,750
April 144 19,800
May 170 21,750
Instructions
a. Identify the fixed and variable cost elements using the high-low method.
b. The hotel management is doing a projection for June 2019. How many rooms should be rented out in order to break even, if the charge is $150 per room rented?
Solutions
Expert Solution
| Rooms Rented | Costs | |
| High level of activity | 170 | $21,750 |
| Low level of activity | 130 | $18,750 |
| Change | 40 | $3,000 |
| Variable Cost per room rented=$3,000 / 40 rooms =$75 per room rented | ||
| Fixed cost element =$21,750 - (170*$75) =$9,000 | ||
| Fixed cost element =$9,000 | ||
| Charge per room rented | $ 150 | |
| Less:Variable cost per room rented | $ 75 | |
| Contribution margin per room rented | $ 75 | |
| Fixed Cost | $ 9,000 | |
| Break-even rooms($9,000/$75) | 120 rooms | |
ekkarill92 answered 2 years agoRelated Solutions
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