Question

The Prancing Pony Inn, a 100-room hotel, currently operates at 75.00% occupancy, a rack rate of $60.00, and a marginal cost of $8.00 per room. The management of the Prancing Pony Inn is considering discounting the rack rate by both 10.00% and 20.00% so that they can increase the occupancy. What equivalent occupancy percentage must be achieved to maintain the same levels of room contribution margin for both 10.00% and 20.00% discount levels? Also, prepare the discount grid including the discount effect based on the current and two different discount situations (assume that marginal cost will remain the same for the two discount situations).

Answer 1