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Using the high-low method, Regency Hotels estimates the total costs of providing room service meals at $12,000 per month, plus 60 percent of room service revenue. a. What is the contribution margin ratio of providing room service meals? b. What is the break-even point for room service operations in terms of total room service revenue? c. What would you expect to be the total cost of providing room service in a month in which room service revenue amounts to $40,000?

Respuesta :

Answer:

a) Contribution margin ratio=40%

b) Break-even point = $30,000

c)Total cost = $36,000

Explanation:

As per the data given in the question,

Total costs of providing room service meals = $12,000 per month

Rate = 60%

Let X be the revenue, So

Total cost =$12,000 + 0.60X

Fixed cost = $12,000

VC ratio = 60%

a) Contribution margin ratio = 1-60% = (1-0.60)

= 0.40

= 40%

b) Break-even point = $12,000÷40%

= $30,000

c) Total cost = $12,000+ 60%×$40,000

= $36,000

abiolataiwo2015

a. The contribution margin ratio of providing room service meals is 40%.

b. The break-even point for room service operations  is $30,000.

c. The total cost of providing room service in a month is $36,000.

a. Contribution margin ratio

Sales 100%

Less: Variable cost 60%

Contribution margin ratio 40%

(100%-40%)

b. Break-even point

Fixed cost $12,000

Divided by: CM ratio 40%

Break-even point  $30,000

($12,000/40%)

c. Total cost

Total cost = $12,000+ (60%×$40,000)

Total cost=$12,000+$24,000

Total cost=$36,000

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