Question

# The 100-room limited-service Pepper Inn has an ADR of \$75 and variable costs per room sold...

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),

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)

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

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