Question 1

Identify Variable Cost

Cleaning Supplies
Linen Service
1/2 Misc Expenses
Total Variable Cost

1920
13920
3657
19497

VC per Room Night

Total Rooms
Operating Days
Total Room Nights (Capacity Available)
Occupancy Rate
Occupied Room Nights (Used Capacity)

80
120
9600
80%
7680

Per Occupied Room Night

2.54

Average Revenue
Avg Rev - Per Unit Var Cost

20.94
18.40

Contribution Margin

Fixed Cost

Fixed Cost

Break Even Point

Per Night (/120)

118913
6463
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

Weekend Days
CM per Room Night
Lost CM, due to room nights lost

8
34
18.40
5005

Added CM due to raised prices

Rooms occupied
Weekend Days
Added Price (Increase in SP, implying increase
in CM since CM = Avg Rev - SP)
Added CM due to Price (SP) increase
Profit Before Taxes

72
34
5
12240

Difference in CM after the Price Increase

New Breakeven Point (The least number of rooms to be occupied)
Breakeven Lost Rooms
CM Per Room night

7235

X
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
New least occupancy for breakeven

17
63

The price increase holds good if there are atleast 63 rooms occupied per

Question 3
Additional Expense for just staying open in off
season

15415

Revenue

Variable Cost

Single Occupancy
Double Occupancy
Weighted Average
Variable Cost per Room (Calculatrted in Q1)

Contribution Margin

CM (Rev - VC per room)

11.46

BE Occupancy Rate

Breakeven Room nights Occupancy

1345

Rooms available
Operating Days
Total Room nights available

30
240
7200

Breakeven Occupancy rate

18.7%

Extra profits that will be yielded

10
15
14
2.54

Predicted Occupancy rate is 20% - 40%

Lowest Predicted Occupancy rate is 20%
Calculated Breakeven Occupancy
Room Difference

1440
1345
95

So 95 rooms extra are being occupied even at

lowest prediction, yielding an extra profit of

Question 4
1
2
3
4
5
6
7

Alternatives to consider
Do Nothing
Open - No adv - No Pool
Open - Adv- No Pool
Open - No Adv - Pool only
Open - Adv - Pool only
Open - No Adv - Pool & Bubble
Open - Adv - Pool & Bubble

DECISION ALTERNATIVE

1087

67.3%

63 rooms occupied per night

Rooms that ve to be occupied to cover the additional costs