Question:
A 90-room motel has an average room rate of $65.60. Its fixed costs are $300,000 a year, and its variable costs total $476,000 at an average occupancy of 70 percent.
a. What is the motel's breakeven occupancy percentage?
b. What level of sales revenue is required to provide an operating income (before taxes) of $100,000 a year?
c. If the average room rate is increased by $8.00, and operating income of $100,000 a year is wanted, how many fewer rooms per night would need to be sold than was the case in part b?
d. Wage rates for housekeepers are to be increased by $4.00 an hour. It takes a housekeeper 1/2 hour to clean a room. Other cost increases will cause an increase of $1.00 in the variable costs per room occupied. Fixed wages and other fixed costs are expected to increase $4,000 per month. To compensate for the increase in room rate to $73.60 (see part c), $30,000 more per year is to be spent on advertising.
Operating income (before tax) is to increase 20 percent over the present $100,000 per year. What level of sales revenue is required? What is the sales revenue in terms of occupancy percentage?