Question

Problem 1

The

King Hotel

has 400 rooms. Each room rents for $62 per day and has a variable cost of $12 per day.

The hotel’s monthly fixed costs are $450,000.

(Assume that each month has 30 days.)

Required:

1.

Compute the breakeven point in rooms

rented.

2.

Compute the daily occupancy percentage that the hotel must have in order to break even.

3.

Compute the total number of rooms that must be paid for and occupied

per month

to earn a profit of

$100,000?

Answer 1

Answer:
Requirement 1	The break-even point in rooms is computed as follows:
	Break-even sales in units	=Fixed cost/Contribution margin per unit
		=$450,000/$50
		9000	Rooms
where,	Contribution per room	= Room rent- Variable cost
		=$62-$12
		$                      50.00
Requirement 2	The daily occupancy percent in order to break-even would be:
	Daily occupancy	75%	(9000 rooms / (400 rooms*30 days))
Requirement 3	Total number of rooms that must be occupied to per month to earn a profit of $100,000
	Rooms to occupied	=(Fixed cost+Profit)/Contribution margin per unit
		=($450,000+100,000)/$50
		11,000.00	Rooms per month