Managerial Accounting - Motel 6
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P2-35; Motel Rentals
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.
- 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?
- 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 Summary
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.
Solution Preview
(a) if the motel is completely full throughout the entire year and
in $
Revenue= Number of Rooms* Average Daily Room rent * No. of days 7300000
Less average variable costs = Number of Rooms * Variable cost* No. of Days 1460000
Contribution 5840000
Less Fixed Costs 3200000
Net Income= 2640000
(b) if the motel is half full?
in $
...
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