Question

Great Eastern Inns has a total of 2,300 rooms in its chain of motels located in eastern Canada. On average, 45% of the rooms are occupied each day. The company’s operating costs are $39 per occupied room per day at this occupancy level, assuming a 30-day month. This $39 figure contains both variable and fixed cost elements. During February, the occupancy rate dropped to only 30%. A total of $1,074,330 in operating cost was incurred during February.

1. Estimate the variable cost per occupied room per day. (Assume 30 days in a month. Do not round intermediate calculations and round your final answer to 2 decimal places.)

2. Estimate the total fixed operating costs per month.

3. Assume that the occupancy rate increases to 45% during March. What total operating costs would you expect the company to incur during March? (Assume 30 days in a month. Do not round intermediate calculations.)

Answer 1

total room 2300 ,45% room occupied so 2300x45% = 1035 rooms

operating cost = 1035 rooms x $39 per day x 30 days = $ 1210950

the occupancy rate dropped to only 30%. A total operating cost $1,074,330

change in operating cost =  $ 1210950 - $1,074,330 = $136620

rooms -

2300rooms *45% occupied = 1035 rooms

2300 rooms *30% occupied = 690 rooms

change in rooms = 345 rooms

variable cost = change in cost / change in activity

= $ 136620 / 345 = $ 396 per room / 30 days = $ 13.2 per room per day

b)

Monthly operating costs at 45% occupancy (above)	$ 1210950
Less variable costs:1035room × 30 days × $ 13.2 per room per day	$ 409860
Fixed operating costs per month	$ 801090

c)

2300 rooms × 45% = 1035 rooms occupied:
Fixed costs	$ 801090
Variable costs: 2300room *45% × 30 days × $13.2 per room-day	$ 409860
Total expected costs	$ 1210950