Cost-volume-profit

Part A

The Leavers Hotel has annual fixed costs of $3,000,000 for its 175-room hotel, average daily room rates of $205.00, and average variable costs of $155.00 for each room rented.

The hotel operates 365 days per year.

The hotel is subject to an income tax rate of 28%.

How many rooms-nights per year must the hotel book to earn net income (after taxes) of $300,000?

Part B

1. Cobblestone, Inc. is a new company, which plans to make decorative planters in two sizes: large and small.The current budget plan for the first year of operations provides the following information:

Small Large

Budgeted #of Units 3,600 1200

Revenue per unit $20 $30

Variable cost per unit $14 $18

Fixed cost per unit $9 $13

(based on budgeted units)

Show two ways to calculate the break-even point for this multi-product scenario, and identify the assumption each method is most susceptible to?