Question

The Hotel has two operating departments. Rooms and F&B. 70% of the hotel's total revenue is earned from room sales and 30% of the total revenue is earned from F&B sales.

Rooms department's contribution margin ratio is 60% and F&B department's contribution margin ratio is 50%. If the fixed cost of the hotel is $400,000, and the management is targeting a before -tax profit of $150,000, what is the required sales revenue? (Rounded to whole numbers)

A.$964,912

B.$795,230

C.$1,234,502

D.$701,754

Answer 1

Ans - $964912 (OPTION A)
(We need to find Sales using Backward calculation)

Total contribution of Hotel = (Total Fixed cost + Targeted before tax profit ) = ($400000 + $150000) = $550000

Now in hotel, there are two departments- Rooms and F&B
Rooms give us 70% of Revenue out of which, contribution margin in rooms is only 60%.
So, 60% of the Rooms which contribute 70% of total revenue = (60% X 70%) = 42%,
Similarly, F&B give us 30% of the total revenue, contribution margin in F&B is 50%
So, 50% of the F&B which contribute 30% of total revenue = (50% X 30%) = 15%

Thus it can be seen that $550000 which is the total contribution of the entire hotel is 57% of the total revenue
(42 % of the Room's contribution + 15% of the F&B's contribution)

And Total revenue = [(Fixed cost + Profit) / Contribution margin]
=> ($550000 / 57%)
=> $964912 (Ans)

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