Skyview Manor Case Study

Skyview Manor

1. On average, how many rooms must be rented each night in season for the hotel to breakeven?

Total Variable Costs

Cleaning Supplies $1,920

Linen Service $13,920

½ Miscellaneous Expense $3,657

$19,497

Variable Costs Per Room Night = $19,497 / 7,680 ($120 • 80 • 80%)

= $2.54

Revenue Per Room = $160,000 / 7,680

= $20.94

Contribution Margin Per Room = Revenue Per Room – Variable Costs Per Room

= $20.94 – $2.54

= $18.40

Fixed Costs = Total Costs – Variable Costs

= $138,410 – $19,497

= $118,913

Breakeven = Fixed Costs / Contribution Margin Per Room

= $118,913 / $18.40

= 6,463 Nights

Breakeven in Rooms = 6,463 / 120

≈ 55 rooms (68% Occupancy)

2. The hotel is full on weekends in the ski season. If all room rates were raised $5 on weekend nights, but occupancy fell to 72 rooms instead of 80, what is the revised profit before taxes for the year, per Exhibit 1?

Contribution Margin Lost

8 rooms • 34 weekend nights (120 • 2/7 = 34) • $18.40 = $5,005

Added Contribution Margin

72 rooms • 34 nights • $5 = $12,240

Net Change

$12,240 – $5,005 = $7,235 increased profit (before tax)

Breakeven of Lost Rooms Per Night

$18.40 X = (80 – X) • $5

$18.40 X + $5 X = $400

$23.40 X = $400

X = 17 rooms

The price increase will be acceptable as long as at least 63 rooms per weekend night (80 rooms – 17 rooms lost) are rented.

3. What is the proposed incremental contribution margin per occupied room/day during the off-season?

Revenue Per Room

Single = $10

Double = $15

Weighted Average = $14

Total Variable Costs

Cleaning Supplies $1,920

Linen Service $13,920

½ Miscellaneous...