Best Eastern Motel is a regional motel chain. Its rooms rent for $100 per night, on average. The variable cost is $40 a room per night. Fixed costs are $5,000,000 per year. The company currently rents 200,000 units per year, with each unit defined as one room for one night. Should this company undertake an advertising campaign resulting in a $500,000 increase in fixed costs per year, no change in variable cost per unit, and a 10% increase in revenue (resulting from an increase in the number of rooms rented)? 

What is the margin of safety before and after the campaign?

 

Fall-For-Fun Company sells three products. Last year's sales were $600,000 for parachutes, $800,000 for hang gliders, and $200,000 for bungee jumping harnesses. Variable costs were: parachutes, $400,000; hang gliders, $700,000; and bungee jumping harnesses, $100,000. Fixed costs were $240,000. 

Find (a) the break-even point in sales dollars and (b) the margin of safety.

Answer rating: 100% (QA)

Answer Best Eastern Motel To determine whether the company should undertake the advertising campaign we need to calculate the operating income before ... View the full answer