Exercise 119 Part Level Submission a Exercise 119 Part Level

Exercise 11-9 (Part Level Submission)

(a)

Exercise 11-9 (Part Level Submission) The Flounder Acres Inn is trying to determine its break-even point during its off-peak season. The inn has 50 rooms that it rents at $145 a night. Operating costs are as follows: Salaries $8,700 per month Utilities $1,500 per month Depreciation $1,100 per month Maintenance $590 per month Maid service $39 per room Other costs $77 per room

Solution

Total fixed cost=Salaries+Utilities+Depreciation+Maintenance

(8700+1500+1100+590)=$11890 per month

Total variable cost=(Maid service+Other costs)

=((39+77)=$116 per room.

Contribution margin=Service revenue-Variable cost

=(145-116)=$29 per room

Hence breakeven=Fixed cost/Contribution margin

(11890/29)

=410 rooms.