Question 1
Identify Variable Cost
Cleaning Supplies 1920
Linen Service 13920
1/2 Misc Expenses 3657
Total Variable Cost 19497
VC per Room Night
Total Rooms 80
Operating Days 120
Total Room Nights (Capacity Available) 9600
Occupancy Rate 80%
Occupied Room Nights (Used Capacity) 7680
Per Occupied Room Night 2.54
Contribution Margin
Revenue/unit 20.94
CM= Rev - Per Unit Var Cost 18.40
Fixed Cost Fixed Cost 118913
Break Even Point 6463
Per Night (/120) 54
Question 2
When we lose room nights, we are only losing the CM from those room nights, not the revenue
as such
Lost CM due to Lost Room Nights Rooms Lost on Weekend Days 8
Weekend Days 34
CM per Room Night 18.40
Lost CM, due to room nights lost 5005
Added CM due to raised prices
Rooms occupied 72
Weekend Days 34
Added Price (Increase in SP, implying increase
in CM since CM = Avg Rev - SP) 5
Added CM due to Price (SP) increase 12240
Profit Before Taxes
Difference in CM after the Price Increase 7235
New Breakeven Point (The least number of rooms to be occupied)
Breakeven Lost Rooms X
CM Per Room night 18.4
X*18.40 = (80-X)*5
18.4X=400-5X
18.4X+5X = 400
23.4X = 400
X = 400/23.4 = 17
New Breakeven rooms 17
New least occupancy for breakeven 63
The price increase holds good if there are atleast 63 rooms occupied per ni
Question 3
Additional Expense for just staying open in off
season 15415
Revenue
Single Occupancy 10
Double Occupancy 15
Weighted Average 14
Variable Cost Variable Cost per Room (Calculatrted in Q1) 2.54
Contribution Margin CM (Rev - VC per room) 11.46
BE Occupancy Rate Breakeven Room nights Occupancy 1345
Rooms available 30
Operating Days 240
Total Room nights available 7200
Breakeven Occupancy rate 18.7%
Extra profits that will be yielded Predicted Occupancy rate is 20% - 40%
Lowest Predicted Occupancy rate is 20% 1440
Calculated Breakeven Occupancy 1345
Room Difference 95
So 95 rooms extra are being occupied even at
lowest prediction, yielding an extra profit of 1087
Question 4
Alternatives to consider
1 Do Nothing
2 Open - No adv - No Pool
3 Open - Adv- No Pool
4 Open - No Adv - Pool only
5 Open - Adv - Pool only
6 Open - No Adv - Pool & Bubble
7 Open - Adv - Pool & Bubble
DECISION ALTERNATIVE
67.3%
63 rooms occupied per night
Rooms that ve to be occupied to cover the additional costs
