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Part$1$: $(20\%)$

Explain the concept with the theory and the application of the CVP analysis and the Breakeven point.

Part $2$: Practical case: $(80\%)$

Ferns is a bed and breakfast hotel in Miami, operating since $2010.$ With the existing competition and the increasing inflation as of $2024,$ they realized that it is difficult to survive, with no proper cost and pricing strategies. Considering the requirements for the study they decided to employ a Mr$.$ Cris, who is a qualified CMA. While studying the existing situation, Mr$.$ Cris decided to identify and collect the existing cost and revenue data as follows : Depreciation on the hotel is $$250,000$ per year. The hotel employs a maintenance person at an annual salary of $$150,000$ and a cleaning person at an annual salary of $$110,000.$ Real estate taxes are $$18,000$ per year. The rooms rent at an average price of $$50$ per person per night. Other costs are laundry and cleaning service at a cost of $$12$ per person per night and the cost of food, which is $$8$ per person per night. You are required to assist Mr$.$ Cris in identifying the below requirements, in order to make right managerial decisions for the growth in Fern's financial performance.

$($a$)$ Determine the number of rentals and the sales revenue the hotel needs to break even using the contribution margin technique. $(20\%)$

$($b$)$ Find the Breakeven point using the graphical method and explain the different areas in the graph: $(10\%)$

$($c$)$ If the current level of rentals revenue is $$200,000,$ by what percentage can rentals decrease before the hotel has to worry about having a net loss? $(10\%)$

$($d$)$ What is the level of rentals needed to earn a target profit of $$41,250.(10\%)$

$($e$)$ The hotel is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $$2\mathrm{.}5$ for food costs per person per night. The hotel management feel they can increase the room rate to $$63$ per person per night. Determine the number of rentals and the sales revenue the hotel needs to break even if the changes are made. $(20\%)$

$($f$)$ Create a scenario to analyze the sensitivity to changes in one of the key variables $($e$.$g$.,$ price, variable cost, fixed cost, sales volume$),$ and evaluate how a $10\%$ increase or decrease in these variables would affect profitability. $(10\%)$

Recommendations:

Provide recommendations based on your analysis.

Explain the potential benefits and risks associated with the proposed changes.

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