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.
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.