The Palmer acres inn is trying to determine its break-even point during its off-peak season. The...
Question:
The Palmer acres inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $75 a night. Operating costs are as follows:
| Salaries | $6,000 per month |
| Utilities | $1,200 per month |
| Depreciation | $900 per month |
| Maintenance | $4,380 per month |
| Maid service | $15 per room |
| Other costs | $30 per room |
1. Determine the inn's break-even point in number of rented rooms per month.
2. Determine the inn's break-even point in dollars.
Break-Even Analysis:
Break-even analysis looks at variable and fixed costs in order to determine how many units would need to be sold in order to achieve zero profit or loss. Any sales volume over the break-even point would result in a profit and conversely any sales volume below the break-even point will result in a loss.
Answer and Explanation: 1
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{eq}\frac{Fixed Costs}{Contribution Margin per unit} = Break-Even Units {/eq}
Variable Costs = 15 + 30 = 45
Fixed Costs = 6,000 + 1,200 + 900 +...
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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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