Accounting Question: Computing Break-even #'s

Question

The Lake Shore Inn is trying to determine its break-even point. The inn has 50 rooms that are rented at $60 per night. Operating costs are as follows:

Salaries      $7,200  per month
Utilities     $1,500  per month
Depreciation  $1,200  per month
Maintenance   $300    per month
Maid Service  $8      per room
Other Costs   $28     per room

Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.

Break-even number of rooms rented per month:___
Break-even sales dollars:__

Formulas used:

Fixed Costs / Contribution Margin per Unit (Unit selling price - Unit Variable Costs) = Break-even point in Units.

Fixed Costs / Contribution Margin Ratio (Contribution Margin per Unit / Unit selling price) = Break-even point in Dollars.

Answer 1

Hint: Unit Variable costs are the costs that increase depending on the number of units that are rented, while the costs per month are fixed. The basic idea is that you spend a certain number of dollars to stay open (taxes, mortgage, desk staff) and there are costs that increase per room rented (cleaning rooms). So what would the Contribution Margin per Unit be? It is defined in the first formula.