Cost Volume Profit Analysis:
You are considering the purchase of a hotel with 20 rooms. If you buy it ,the fixed costs are expected to be $200,000 per year. The variable costs of renting a room for one night include $20 for maid service and $5 for utilities and other costs. Assume no taxes.
a. If you expect to rent the rooms for $90 how many rooms must you rent during the year?
b. If you want to have a profit of $50,000 and expect to be at 70% of capacity for the 365 days of the year, what price per room would you expect to have to change?
You perform the following profitability analysis on the products that you manufacture
Product A Product B Product C
Revenues 300,000 800,000 100,000
Variable Costs 200,000 500,000 40,000
Fixed Costs 100,000 100,000 100,000
Profit 0 200,000 $40,000
Number of units made and sold 1,000 10,000 100
Fixed costs are sunk and there is excess capacity.
1. Should product C be dropped? Capacity.
2. Which product would provide the most profit if one more unit were sold?