The Hotel El Politécnico has # 500 rooms. They usually have a cost per room of...

The Hotel El Politécnico has # 500 rooms. They usually have a cost per room of $ 70.00, plus a fixed cost of $ 5,000.00 per day. Each room is rented for $ 175.00 per day during the summer season. Answer the following questions using the above data:

a) If the Hotel operates at 70% capacity for one day, what is the net profit (gain / loss)?

b) What is the equilibrium point (B. E. P.)? in units, if it operates at full capacity

c) Would you recommend lowering the current price per room to earn $ 40,000, if 20% of the rooms are unoccupied? What would be the new price per room?

d) What should be the variable cost per daily unit to earn $ 30,000.00; at its 80% capacity?

Expert Solution

Room capacity	500 Rooms
sales price	175
Variable cost	70
Contribution (S-V)	105
Fixed cost	5000

1. if hotel operates at 70 % capacity
No of rooms occupied	500*70%
total rooms occupied		350
Sales price	175	61250
variable cost	70	24500
contribution (S-V)		36750
less
Fixed Cost		5000

Profit/ Loss	profit	31750


2 equilibrium point (B. E. P.) in units
sales value	175*500	87500
variable cost	70*500	35000
contribution		52500

profit volume ration = Contribution/ sales *100		60

BEP= fixed cost / Profit volume ratio	5000/60%	8333.333333	in $
BEP in Unit= BEP sales value/ sales price	8333/175	47.61904762	in units

3. hotel capacity when 20 % unoccupied	500	400

selling price would be as follows	unit= ( fixed cost + desired profit) sales - variable cost
	400= (40000+5000) / sales - 70
	(sales- 70 ) * 400 = 45000
		sales - 70 = 45000/400
		sales = 70+112.5
		182.5

sales value	182.5*400	73000
variable cost	70*400	28000
contribution		45000
less
fixed cost		5000
	profit	40000

we would not recommend that price should be lowered rather it should increase.

4 varable cost at 80 % capacity	500	occupied rooms = 400

unit= ( fixed cost + desired profit) sales - variable cost
400= (30000+5000) / sales - X
(175- X ) * 400 = 35000
	175 - X = 35000/400
	variable cost = 175-87.5
	87.5
Check
sales value	175*400	70000
variable cost	87.5*400	35000
contribution		35000
less
fixed cost		5000
	Profit	30000

Rahul Sunny answered 1 year ago

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