COST-VOLUME-PROFIT (CVP) ANALYSIS
David Keon operates a bed & breakfast hotel in Banff, Alberta, Canada. His forecasts for next year follow:
Annual rental costs	$38,000
Maintenance staff monthly salaries	$9,000
Cleaning staff monthly salaries	$18,500
Security cost per room rental	$5
Cost of food per room rental	$5
Average room rental revenue	$60
Monthly average no. of room rentals	250
REQUIRED:
Calculate the number of room rentals per year that David 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.
David is considering an upgrade of his business to attract more customers and to increase his profits. He plans to increase his food costs by $10 per room rental as he thinks this will allow him to increase his average room rental rate by $25. Calculate David's new break-even number of room rentals.
David's plan to increase the room rental rate will require repair costs of $20,000. What is the annual break-even number of room rentals with this additional cost ?
Calculate David's annual margin of safety for Required 5. Show this value as the number of room rentals.