Question

) Braha Boda Hotel’s is a company in the hospitality industry that take care of travelers along its area of operation. The budgets for the Hotel got the year 2010 are as follows:

                                                         GHS                            GHS

Occupants Charges                                                          1,100,000

Costs:                 

Variable:

Direct supplies.                         80,000

Direct salaries                           600,000

Occupation service:

   Overheads                             65,000

   Administration.                     92,000

Fixed:

Overheads                               125,000

Administration                        140,000                         1,102,000

Loss                                                                                 (2,000)

Additional Information:

1. Number of rooms available        100 per day

2. Occupants days                         24,000 per annum

You are required to compute:

(i)   The contribution margin ratio.

(ii) The break-even point in both occupants’ days and occupants’ charges.

(iii) The margin of safety ratio if the Hotel operates at fully capacity.

(iv) The break-even points one occupants’ days of direct salary were

increased to GHS626,000.

(v) The break-even in occupants’ days if fixed occupants service overheads were increased to GHS145,000.

Answer 1

(i)	Contribution margin ratio=Contribution margin/Occuppant charges
	Contribution margin:
					GHS	GHS
	Occupants Charges					1100000
	Less:Variable costs
	Direct supplies.				80000
	Direct salaries				600000
	Occupation service:
	Overheads				65000
	Administration.				92000	837000
	Contribution margin					263000
	Contribution margin ratio=263000/1100000=0.239091
(ii)	Break-even point in occupants’ days=Fixed costs/Contribution margin per occupant day
	Fixed costs:
				GHS
	Overheads			125000
	Administration.			140000
	Total			265000
	Contribution margin per occupant day=Contribution margin/Occupant days=263000/24000=GHS 10.95833
	Break-even point in occupants’ days=265000/10.95833=24185.52=24186 days
	Break-even point in occupants’ charges=Fixed costs/Contribution margin ratio=265000/0.239091=GHS 1108365
(iii)	Margin of safety ratio=(Actual occupant charges-Break even point in occupant charges)/Actual occupant charges=(1100000-1108365)/1100000=-0.0076=-0.76%
(iv)	Break-even point in occupants’ days=Fixed costs/Contribution margin per occupant day
	Contribution margin:
					GHS	GHS
	Occupants Charges					1100000
	Less:Variable costs
	Direct supplies.				80000
	Direct salaries				626000
	Occupation service:
	Overheads				65000
	Administration.				92000	863000
	Contribution margin					237000
	Contribution margin per occupant day=Contribution margin/Occupant days=237000/24000=GHS 9.875
	Break-even point in occupants’ days=265000/9.875=26835.44=26836 days
	Break-even point in occupants’ charges=Fixed costs/Contribution margin ratio
	Contribution margin ratio=237000/1100000=0.215455
	Break-even point in occupants’ charges=265000/0.215455=GHS 1229955
(v)	Break-even point in occupants’ days=Fixed costs/Contribution margin per occupant day
	Fixed costs:
				GHS
	Overheads			145000
	Administration.			140000
	Total			285000
	Contribution margin per occupant day=Contribution margin/Occupant days=263000/24000=GHS 10.95833
	Break-even point in occupants’ days=285000/10.95833=26007.61=26008 days