Question

1. The 100-room limited-service Pepper Inn has an ADR of $75 and variable costs per room sold of $15. Assume there is no other sales activity. Its monthly fixed costs total $120,000.
   1. How many rooms must be sold to break even? (please round up the number). (1 points)
   2. What day of the month does it break even if it averages a paid occupancy percentage of 85%? Assume all rooms are available for sale each day. (2 points)

If variable costs are reduced by $3 and fixed costs increase by $120,000 annually (for questions c & d),

3. How many rooms must be sold to break even? (please round up the number). (1 points)
4. What day of the month does it break even if it averages a paid occupancy percentage of 85%? Assume all rooms are available for sale each day. (2 points)

Answer 1

a.

Breakeven in rooms = $120,000 / ($75 - $15) = 2,000 rooms to breakeven

b.

Rooms occupied per day = 100 X 85% = 85 rooms

Days to breakeven = 2,000 / 85

= 24th day of the month to Breakeven

c.

Contribution margin = $75 - ($15 - $3) = $63

Fixed cost per month = $120,000 + ($120,000 / 12) = $130,000

Breakeven point = $130,000 / $63

= 2,063 rooms to breakeven

d.

Rooms occupied per day = 100 X 85% = 85 rooms

Days to breakeven = 2,063 / 85

= 25th day of the month to Breakeven