Question

P6.2 A 25-room budget motel expects its occupancy next year to be 80%. The owners' investment is $402,800. They want an after-tax return on their investment of 15%. Tax rate is 25%. Interest on a long-term mortgage is 10%. Present balance outstanding is $806,400. Depreciation rate on the building is 10% of the present book value of $700,200. Depreciation on the furnishings and equipment is at 20% of the consolidated present book value of $150,400. Other known fixed costs total $141,800 a year. I At 80% occupancy rate the motel’s operating expenses, wages, sup- plies, and laundry, etc. are calculated to be $55,400 a year. 1 The motel has other income from vending machines of $5,210 a year. a. To cover all costs and produce the required net income after tax, what should the motel's average room rate be next year?

Answer 1

P6.2 Total Expenses

Particulars	Amount
Interest on Mortgage	$     80,640.00
Dep. On Building	$     70,020.00
Dep. On Furnishing & Equipment	$     30,080.00
Other Fixed Costs	$ 1,41,800.00
Other operating Exp. Etc.	$     55,400.00
Total Expenses	$ 3,77,940.00

Investment = $402800

Income on Investment = 15%  = 402800 x 15% =$60420 (After-tax)

Income on Investment (Before-Tax) = 60420 x 100/75 = $80560

Total amount to be recovered (sales Revenue) = Total expenses - other income from vending Machine + Income on Investment (after tax) = 377940 - 5210 +80560 = $453290

Total Rooms = 25

Occupied Rooms = 25 x 80% =20

Hence, Average Room Rate = 453290/20 = $22664.5

P6.9

Total Sales Revenue = $912500

Total Rooms =45

Rooms occupied = 80% 45 x 80% = 36

Rooms Occupied in Each Category = 36/3 = 12

Singles:Doubles:suits Room Ratio = 150:220:380

Summation of Rooms Ratio =150+220+380 = 750

Single Sales Revenue = 912500 x 150/750 = $182500

Average singles Room Rate = 182500/12 = 15208 (Approx.)

Doubles Sales Revenue = 912500 x 220/750 = $267667 (Approx.)

Average Doubles Room Rate = 267667/12 = $22306 (Approx.)

Suites Sales Revenue = 912500 x 380/750 = $462333 (Approx.)

Average Suites Room Rate = 462333/12 = $38528 (Approx.)