Score: 0 of 1 pt 3 of 6 (0 complete) HW Score: 0%, O of 6 pts E13-22 (book/stati

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Score: 0 of 1 pt 3 of 6 (0 complete) HW Score: 0%, O of 6 pts E13-22 (book/static) Question Help Jason Brady is the managing partner of a business that has just finished building a 60-room motel. Brady anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Brady estimates the following operating costs for next year: (Click the icon to view the operating costs.) 0 (Click the icon to view additional information.) Read the requirements Requirement 1. What price should Brady charge for a room-night? What is the markup as a percentage of the full cost of a room-night? Begin by selecting the formula, then enter the amounts and solve for the room price per night. Price per room-night per room-night Data Table More Info The capital invested in the motel is $1,500,000. The partnership's target return on investment is 20%. Brady expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. Variable operating costs $ 3 per room-night Fixed costs Salaries and wages Maintenance of building and pool Other operating and administration costs 177,000 38,000 190,000 405,000 Print Done Total fixed costs Print Done Requirements 1. What price should Brady charge for a room-night? What is the markup as a percentage of the full cost of a room-night? Brady's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 10%, the expected number of room-nights Brady could rent would increase by 10%. Should Brady reduce prices by 10%? Show your calculations 2. Print Done

Explanation / Answer

1)Target income =asset invested *required return

      = 1500000*.20

     = 300000

Total contribution =Target income+fixed cost

= 300000+405000

   = 705000

contribution per room night = 705000/15000 =$ 47

Contribution per room night+variable cost =price per room night

47+3 =$50 per room night

1b)Full cost per room =variable +fixed

     = 3+ (405000/15000)

   =3 +27

   = 30

Profit per room night = 50-30 = 20

mark up % =profit /full cost

      = 20/30

         = .6667 or66.67% on full cost

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