Question

Brian Propp operates a bed & breakfast hotel in Banff, Alberta, Canada. His forecasts for next...

Brian Propp operates a bed & breakfast hotel in Banff, Alberta, Canada. His forecasts for next year follow:  

Annual rental costs  

$44,000

Maintenance staff monthly salaries  

$11,000

Cleaning staff monthly salaries  

$15,000

Security cost per room rental  

$7

Cost of food per room rental  

$8

Average room rental revenue  

$130

Monthly average no. of room rentals  

                         350  

REQUIRED:  

Calculate the number of room rentals per year that Brian needs to break even.  

Calculate the annual sales revenue required to break even.  

Calculate the annual number of room rentals required to earn a profit before tax of $50,000.  
Business   Accounting   
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Homework Answers

Answer #1

Solution a:

Contribution margin per room rental = $130 - $7 - $8 = $115 per room rental

Annual Fixed cost = $44000 + $11000*12 + 15000*12 = $356,000

Number of room rentals per year to break even = Fixed cost / Contribution margin per room rental

= $356000 / $115 = 3096 room rental

Solution b:

annual sales revenue required to break even = 3096 * $130 = $402,480

Solution c:

annual number of room rentals required to earn a profit of 50000 =  ($356000 + $50000) / $115 = 3530

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