Question

Great Eastern Inns has a total of 2,300 rooms in its chain of motels located in eastern Canada. On average, 45% of the rooms are occupied each day. The company’s operating costs are $39 per occupied room per day at this occupancy level, assuming a 30-day month. This $39 figure contains both variable and fixed cost elements. During February, the occupancy rate dropped to only 30%. A total of $1,074,330 in operating cost was incurred during February.

1. Estimate the variable cost per occupied room per day. (Assume 30 days in a month. Do not round intermediate calculations and round your final answer to 2 decimal places.)

2. Estimate the total fixed operating costs per month.

Answer 1

Rooms @ 45% Occupancy -   ( 2,300 x 30 x 45% )	31,050
Rooms @ 30% Occupancy -   ( 2,300 x 30 x 30% )	20,700
Change in Costs          =    (31,050 x $ 39 ) (-) $ 1,074,330          =    $ 136,620
Change in Volume          = 31,050 (-) 20,700          =    10,350
Change in Costs	/	Change in Volume	=	Variable Cost per occupied room per day
$ 136,620	/	10,350	=	$ 13.20
Fixed Opersting cost per month            =      (31,050 x $ 39 ) (-) [ 31,050 x $ 13.20 )            =    $ 1,210,950 (-)    $ 409,860            =      $ 801,090