TUTORIAL 1

(WEEK 9: 13 DEC 2020 – 17 DEC 2020)

QUESTION 1

River View is a small hotel located near Sungai Kapeh, Segamat. The charge of RM50 per
person is for one night’s accommodation with a full breakfast in the morning. The retired couple
who own and manage the hotel estimate that the variable cost per person is RM20. This includes
such costs as food, cleaning and utilities. The hotel’s fixed costs, which include rates, hotel
employees health premium, outsourced services contracted for fixed monthly amount, yearly
maintenance contract fees for all equipment and land taxes, total to RM6,000 per year.

The hotel can accommodate 10 guests each night.

Required:

a. Determine the unit of service for the hotel.

= 10 x 365 days
= 3650 units

b. Calculate the contribution margin per unit of service.

RM50 – RM20
= RM30 per unit

c. Calculate the contribution margin ratio (i.e. the C/S ratio).

= RM30 / RM50 X 100
= 60%

d. Determine the annual break-even point in units of service and in value of service revenue.
BEP (units)
= fixed cost / contribution
= RM6 000 / RM30
= 200 units

BEP (value)
= fixed cost / cs ratio
= RM6 000 / (50/50)
= RM10 000

e. Due to the current pandemic covid-19, the occupancy rate has reduced. Accordingly, the
couple intends to reduce the charges per person for one night’s accommodation to RM45.

Determine the effect of this change to the break-even point in units of service and in value
of service revenue. (Round off your answers to the nearest whole number).
BEP (units)
= RM6 000 / (RM45-RM20)
= 240 units

BEP (value)
= RM6 000 / (RM45-RM20) / 45
= RM 10 799
 Price changes from RM50 to RM45 because of the increasing to the units for 40 units and
value for RM799.

f. A friend to the couple just came and visited the hotel last week. He advises the couple to
maintain the charges per person at RM50 instead of reducing it. As an alternative, he
suggested that the full breakfast can be reduced to only a partial one. By doing so, the
cost of food can be reduced by RM2.

Determine the effect of this change to the break-even point in units of service and in value
of service revenue. (Round off your answers to the nearest whole number).

BEP (units)
= RM6 000 / (RM50-RM18)
= 187.5 units

BEP (value)
= RM6 000 / (RM50-RM18) / 50
= RM 9 375

g. Comparing part (e) and (f) above, justify which one is a better option.

The better option is E. This is because E increase the break-even point units that can
cause the increasing in the value.