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    Solve: Net Income and Break Even Calculation

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    Suppose a particular Motel 6 has annual fixed costs of $3.2 million for its 400-room motel, average daily room rents of $50, and average variable costs of $10 for each room rented. It operates 365 days per year.

    1. How much net income on rooms will Motel 6 generate (a) if the motel is completely full throughout the entire year and (b) if the motel is half full?
    2. Compute the break-even point in number of rooms rented. What percentage occupancy for the year is needed to break even?

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    Solution Preview

    1. Net Income= Total revenue - total cost
    (a) If it is completely full, the number of rooms rented = 400.
    Total revenue = 400 rooms X $50 per day X 365 days = 7,300,000
    Total cost = 400 X $10 X 365 (variable) + 3,200,000 ...

    Solution Summary

    This solution explains how to compute the necessary calculations to solve for the net income and breakeven point for the particular Motel 6 in question. All calculations and formulas are shown in a step-wise fashion.