Ada Hotel sells two room tpes: standard rooms and deluxe rooms. Average daily rate (ADR) and...

Ada Hotel sells two room tpes: standard rooms and deluxe rooms. Average daily rate (ADR) and variable costs (VC) of the two room types are provided in the table below: (Hint: Treat two room types as two different products.)

   ADR ($)   Variable Cost ($)
Standard rooms    394.50   256.43
Deluxe rooms   631.20   366.10


The Mock Hotel's fixed costs for a month is = =       252480
Sales mix (contribution of each room type to total room revenue) of the hotel is:

Deluxe rooms   66%
Standard rooms    34%

Required:
Using the information provided above, answer the following questions:
a. What is the break-even room nights (number) for the the hotel given the sales mix of the two room packages?
b. What must be the room revenue for the hotel to make a profit of $50,000 a month?
c. If the hotel is considering an advertisement campaign for its rooms with a cost $5,000, hom much in room revenue should be generated to cover this extra cost?

Expert Solution

W/n- Computation of Contribution Margin Ratio
Room	ADR(a)	Variable Cost (b)	Contribution (c=a-b)	CM Ratio (c/a)
Standard	$394.50	$256.43	$138.07	35.00%
Deluxe	$631.20	$366.10	$265.10	42.00%

W/No Computation of Weighted Average Contribution Margin Ratio
Room	Sales mix % (a)	Contribution per Unit (b)	*Weighted average contribution Margin per Unit (ab)**	CM Ratio (c )	*Weighted average contribution Margin Ratio(ac)**
Standard	34%	138.07	46.94	35%	11.900%
Deluxe	66%	265.10	174.97	42%	27.720%

Weighted Average CM	221.91		39.620%

Computation of BEP Room Night

BEP= Fixed Cost/ Weighted Average CM per Unit

BEP= 252480/221.91= 1137.76

Computation of Room Revenue for Hotel to make target Income

BEP=( Fixed Cost+ Target Income )/ Weighted Average CM Ratio

BEP=(252480+50000)/39.62%= $763453

Computation of Room Revenue to be generated for Extra Cost

Extra Cost / CM Ratio

$5000/39.62%=$12620

ekkarill92 answered 3 years ago

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