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Question(s) / Instruction(s):

. Jill Hayes operates a bed and breakfast hotel in a resort area in the Smoky Mountains. Depreciation on the hotel is $60,000 per year. Jill 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 $8.00 per person per night and the cost of food which is $4.00 per person per night.

Instructions (show all computations)

(a) Determine 1) the number of rentals and 2) the amount of sales revenue Jill needs to break even using the contribution margin technique.

(b) If the current number of rentals is 3,000, by what percentage can rentals decrease before Jill has to worry about having a net loss? (Hint: compute the margin of safety ratio.)

(c) Jill is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3.00 for food costs per person per night. Jill feels she can increase the room rate to $65 per person per night. Determine 1) the number of rentals and 2) the amount of sales revenue Jill needs to break even if the changes are made.

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