Reference no: EM132510232

Cost-volume-profit

Part A

• The Soundsthatcantbemade 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 (please ignore leap years).
• The hotel is subject to an income tax rate of 28%.

Required

Question 1: How many rooms-nights per year must the hotel book to earn net income (after taxes) of $300,000?

Question 2: Provide a description of a prediction that you might make based on the results of your analysis.

Part B

• GH Artist Supply, Inc. is a new company that specializes in panels and frames for artists.
• In a new product line, GH managers plan to create new, eco-friendly panels in three sizes: large, medium, and small.
• The current budget plan for the first year of operations provides the following information:

                                             Small                 Medium               Large

# of units                         200                     110                 80

Selling price per unit          $20                      $45                  $90

Variable cost per unit          $14                     $18                    $31

Fixed costs                     $5,000                  $2,800               $2,200

Required

Question 1: Two managers within GH are arguing about the best way to calculate the break-even point in this multi-product scenario. Each has their own method they would like to use.

Question 2: Compute the break-even point using the two common methods used for multi-product scenarios.

Question 3: For each method, describe the assumption that is unique to that method.