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||$13,110 per month|
|Utilities||$1,770 per month|
|Depreciation||$1,400 per month|
|Maintenance||$800 per month|
|Maid service||$7 per room|
|Other costs||$35 per room|
A. Determine the inn's break-even point in (1) the number of rented rooms per month and (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 and (2) the margin of safety ratio?
Cost, volume, profit (CVP) analysis is a process of using the product of cost accounting to forecast sales and the impact on profitability. There are several types of CVP analysis including break-even analysis, the margin of safety analysis, and target-profit analysis.
Answer and Explanation: 1
We need to start by finding the fixed costs for the Bonita Inn:
- $13,110 + $1,770 + $1,400 + $800 = $17,080
We now add up the variable costs per...
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fromChapter 8 / Lesson 9
Cost-volume-profit analysis (CVP) seeks to better understand the relationship between costs, revenue, and volume of sales. Explore the components in these analyses, the assumptions they take, and see these through the CVP income statement.