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Break-even Analysis

1. What is the breakeven point for the KDJ Inn?
2. If the fixed cost lease is traded for a variable lease of 20 percent of total sales, what is the revised breakeven point for the KDJ Inn?
3. If (independent of #2) the variable costs increase by 10 percent, by what percentage must sales increase in order for the KDJ Inn to earn its net income of $225,000?
4. If (independent of #2 and #3) the KDJ Inn is to earn net income of $300,000, what must its room sales equal? (Assume that the sales mix remains constant.)

1. What is the food department's CMR?
2. What is the weighted average CMR for ECDR?
3. What is the breakeven point?
4. The Casses wish to increase net income by $30,000 and feel this can be done by increasing room sales only. Determine the necessary increase in room sales to meet this requirement.
5. Assume (independent of #4) that revenue from the stables can be increased, but only with a $500 increase in advertising (a fixed cost) for brochures to go in each room. What level of sales from the stables must be generated to cover this cost?
6. Assume that the brochures mentioned in #5 are used as a direct mailing. The cost would now be $1,500 to cover printing and mailing, but sales for each department would increase. Assuming that room sales, food sales, and stable revenue remain at a ratio of 5 to
2 to .05, how much must revenues increase for net income to remain constant?

See attached file for full problem description.


Solution Summary

This solution looks at accounting break even questions: changes in fixed cost to variable cost lease, increases in net income.