1. In 2012, Stallman Co. had a break-even point of $800,000 based on a selling price of $10 per unit and fixed costs of $240,000. In 2013, the selling price and variable costs per unit did not change, but the break-even point increased to $850,000. Instructions

(a) Compute the variable cost per unit and the contribution margin ratio for 2012. (

b) Using the contribution margin ratio, compute the increase in fixed costs for 2013.

2. Jane Botosan operates a bed and breakfast hotel in a resort area near Lake Michigan. Depreciation on the hotel is $60,000 per year. Jane employs a maintenance person at an annual salary of $32,000 and a cleaning person at an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $10 per person per night and the cost of food which is $5 per person per night. Ex. 169 (Cont.)

Instructions (a) Determine the number of rentals and the sales revenue Jane needs to break even using the contribution margin technique.

(b) If the current level of rentals is 3,500, by what percentage can rentals decrease before Jane has to worry about having a net loss?

(c) Jane is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3 for food costs per person per night. Jane feels she can increase the room rate to $66 per person per night. Determine the number of rentals and the sales revenue Jane needs to break even if the changes are made.