MGT404 Assignment No. 1 Solution Spring 2022

 


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Learning Objective:
The students in this assignment are intended to learn the concept of Cost-Volume-Profit analysis and its application in services organizations.
Learning Outcomes:
After going through this activity, the students would be able to learn how to compute contribution margin and break-even point of a service organization based on cost-volume profit analysis.
Assignment Question:
The Gardens Inn is a small restaurant offering one-night stay including a breakfast to its customers. The cost for one such visit is Rs. 2,000 per person. The inn's owner and managers, a retired couple, estimates that the variable expenditure per person per visit is Rs. 800. This includes a night stay, food, utilities, and cleaning service. The Gardens Inn can accommodate up to 10 persons each night. The inn's annual fixed expenditures are Rs. 1,680,000.
Required:
a) Compute contribution margin ratio.
b) Determine number of service visits required to earn a target profit of Rs. 2,400,000.
c) If the price per night stay is reduced by 25%, how much such visits would be needed to
break-even?
d) If the price per night stay is reduced by 25% and variable cost by Rs. 300, what impact will this have on the unit break-even point?

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