Question

Problem 12 The Myer Motel (MM), a rooms-only fifty-room lodging operation, ha follows: Monthly fixed costs - $20,000 Variable costs/room sold = $20 ADR = $60 Average Tax Rate = 20 percent Required: 1 What is MM's CMR? 2. What is MM's breakeven point? (in rooms sold) 3. If MM is to make $10,000 of monthly profit (after tax), what must its total revenue be? 4. If the MM makes $10,000 of monthly profit during June, what day of the month does it break even? (Assume the number of rooms sold are the same each day.) 5. If MM's variable costs increased by 50 percent, how much must its ADR increase, all other things being the same?

Answer 1

Answer:

1	MM's CMR
	CMR = Contribution / Sale * 100
	Contribution = Sales - Variable Cost
		No.of Room	Rate	Total
	Sales	50	60.00	3,000.00
	Less: Variable Cost	50	20.00	1,000.00
	Contribution =			2,000.00
	CMR = 2000 / 3000 * 100			67%

2	Break even Point = Fixed Cost / CMR Ratio
	Fixed Cost = 20,000
	CMR = 67%
	Break even Point = 20,000 / 67%			30,000.00

3	If MM is to make $10,000 of monthly profit after tax.
	Total Revenue will be		10,000/80% + Fixed Cost / CMR Ratio
			(12500 + 20,000) / 67%
			48,750.00

4	Break even day of month = Break even Sales / Total Sales * 30
	30000 / 48750 * 30 =		18.46
	Break even day of the month = 18th Day

5	If MM's variable cost increased by 50% ADR increase will be 50%