San Marcos Inn_Breakeven Analysis
The San Marcos Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $50 a night. Operating costs are as follows. Salaries ………………………..$8,500 per month Utilities ……………………….. 2,000 per month Depreciation ………………….. 1,000 per month Maintenance ………………….. 500 per month Maid service ………………….. 5 per room Other costs …………………… 33 per room Instructions (a) Determine the inn’s break-even point in (1) Number of rented rooms per month (2) Dollars. (b) 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 (2) The margin of safety ratio? |
a) Determine the inn’s break-even point in (1) Number of rented rooms per month
Room Rent $50 per night
Variable cost
Maid service $5 per room
Other costs $33 per room
Total variable costs $38 per room
Contribution $12 per room
Fixed costs
Salaries $8,500 per month
Utilities $2,000 per month
Depreciation $1,000 per month
Maintenance $ 500 per month
Total Fixed costs $11,500 per month
Breakeven point in Number of rented rooms
= Total fixed costs / Contribution per room
= $11,500 / $12
= 959 rented rooms per month (2) Dollars
Contribution margin ratio
= Contribution per room / room rent
= $12/ 50
= 24%
Breakeven point in dollars
= Total fixed costs / Contribution margin ratio = $11,500 / 24%
= $47,917
(b) 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
Actual sales = $50 x 50 x 30
= $75,000
Breakeven sales = $47,917
Margin of safety = $75,000- 47,917
= $27,083 (2) The margin of safety ratio?
Margin of safety ratio
= margin of safety / Actual sales
= $27,083 / 75,000
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