# Computing the break-even point

### Problem

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, in dollars

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.

### Progress

I know the general formulas:

• Break-even point in Units is obtained by dividing Fixed Costs by Contribution Margin per Unit. The latter is (Unit selling price - Unit Variable Costs)
• Break-even point in Dollars is obtained by dividing Fixed Costs by Contribution Margin Ratio. The latter is (Contribution Margin per Unit / Unit selling price).

However, I cannot figure out the Unit Variable costs. This is is why this problem is so hard for me, even with the formulas.

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I cannot figure out the Unit Variable costs that is why this problem has be so hard for me, even with the formulas. – Daniel Loisi Mar 7 '11 at 4:03
Please state your question in the body, not a comment. Since you are asking a question, it is only polite for you to ask, rather than post in the imperative mode. – Arturo Magidin Mar 7 '11 at 4:09
The unit variable cost would appear to be the extra cost you incur for each rented room. If you rent a room, you take in 60 dollars, but then you must spend, in addition to your fixed costs, 8 in maid service and 28 in "other costs", so you don't really get the entire 60 dollars free and clear, but rather only 60 - (8+28) = 24 dollars free and clear. – Arturo Magidin Mar 7 '11 at 4:28
@Arturo: still one extra zero early in the post. But I liked your answer. – Ross Millikan Mar 7 '11 at 4:30