The Bonita Inn is trying to determine its break-even point. The inn has 75 rooms that are rented...
Question:
The Bonita 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 | $10,900 per month |
| Utilities | 1,950 per month |
| Depreciation | 1,400 per month |
| Maintenance | 730 per month |
| Maid service | 7 per room |
| Other costs | 35 per room |
a. 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 $_____
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 and (2) the margin of safety ratio?
- 1. The margin of safety $_____
- 2. The margin of safety ratio _____%
Break-Even Analysis:
The break-even point is the amount of sales that need to be generated or the number of units that need to be sold in order to cover all costs but make zero profit or loss. The break-even point should be the minimum a company wants to sell.
Answer and Explanation: 1
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Question (a.)
1. Break-even in Rooms
The break-even point in rooms can be calculated using the following formula:
- Break-even in Rooms = Total...
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Break-Even Analysis: Definition & Example
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Chapter 4 / Lesson 3
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A break-even analysis utilizes a price calculation formula to determine how much product a business must sell and at what price in order to make a profit. Learn how to apply this analysis through examples with fixed and variable costs, and discover the importance of a margin of safety.
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