Question:
The Relax Inn's rooms department has annual sales of $600,000 and variable costs of $180,000. The inn's food department has annual sales revenue of $200,000 and variable costs of $160,000. The inn's fixed costs are $220,000. The total sales revenue of the inn is $800,000 jointly.
a. Calculate the inn's breakeven point, assuming the ratio of room's sales to food sales remains constant at any level of total sales.
b. The owners want to increase their restaurant's sales revenue, and they plan to spend $1,000 on brochures to be displayed in the inn's entry lobby and in the guest rooms. What level of incremental food sales must be achieved to cover the brochure cost? (Assume that room sales remain constant.)
c. If the inn's owners want to increase operating income by $40,000 by increasing rooms occupancy rate, what is the incremental room's sales revenue required to support the $40,000 increase to operating income? (Assume no effect on restaurant sales.)