2)Jane Botosan operates a bed and breakfast hotel in a resort area near Lake Mic

Question

2)Jane Botosan operates a bed and breakfast hotel in a resort area near Lake Michigan. Depreciation on the hotel is $60,000 per year. Jane employs a maintenance person at an annual salary of $32,000 and a cleaning person at an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $10 per person per night and the cost of food which is $5 per person per night.

Instructions

(a)      Determine the number of rentals and the sales revenue Jane needs to break even using the contribution margin technique.

(b)      Jane is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3 for food costs per person per night. Jane feels she can increase the room rate to $66 per person per night. Determine the number of rentals and the sales revenue Jane needs to break even if the changes are made.

please show all working. Thanks

Explanation / Answer

a) Fixed cost = 60000+32000+24000=$116,000

Variable cost = 10+5= 15

Price = 60

number of rentals to break even= Fixed cost/( Price-Variable cost) = 116,000/(60-15)= 2578

sales revenue Janeneeds to break even = 2578*60=$154680

b)

Fixed cost = 60000+32000+24000=$116,000

Variable cost = 10+5+3= 18

Price = 66

number of rentals to break even= Fixed cost/( Price-Variable cost) = 116,000/(66-18)= 2417

sales revenue Janeneeds to break even = 2417*66=$159522

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