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?
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 ...
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.