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Exercise 5-9 (Video) The Carla Vista Acres Inn is trying to determine its break-even point during its off-peak season
Exercise 5-9 (Video)The Carla Vista Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $40 a night. Operating costs are as follows:
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Determine the inn’s break-even point in number of rented rooms per month.
Determine the inn’s break-even point in dollars.
Expert Solution
Part A
| Contribution margin per room | = | $40 – ($7 + $13) |
| Contribution margin per room | = | $20 |
| Contribution margin ratio | = | $20 ÷ $40 = 50% |
| Fixed costs = $5,000 + $1,100 + $1,200 + $780 | = | $8,080 |
| Break-even point in rooms = $8,080 ÷ $20 | = | 404 |
Part B
| Break-even point in dollars | = | 404 rooms × $40 per room |
| = | $16,160 per month | |
| OR | ||
| Fixed costs ÷ Contribution margin ratio | = | $8,080 ÷ 0.50 |
| = | $16,160 per month |
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