Question

Great Eastern Inns has a total of 1,200 rooms in its chain of motels located in eastern Canada. On average, 65% of the rooms are occupied each day. The company’s operating costs are $20 per occupied room per day at this occupancy level, assuming a 30-day month. This $20 figure contains both variable and fixed cost elements. During February, the occupancy rate dropped to only 45%. A total of $399,600 in operating cost was incurred during February.

Required: 1. Estimate the variable cost per occupied room per day. (Assume 30 days in a month. Do not round intermediate calculations and round your final answer to 2 decimal places.) Variable cost per room per day 2. Estimate the total fixed operating costs per month. Fixed operating cost per month

Answer 1

		OCCCUPANCY RATE	Rooms Occupied	Total Cost
	High LEVEL	65%	780	468,000
	Low Level	45%	540	399,600
	Change		240	68,400
	Change per unit (Variable cost) = Change in total cost / Change in Units Sold
	=68400 / 240
Variable cost	285	per room per day
	Fixed Cost calculation
	Variable Cost + Fixed cost = Total cost
	285 * 780 + Fixed Cost = 468000
Fixed op. Cost	Fixed Operating Cost = 245700
3)	If occupancy rate 60%
	Rooms Occupied	720
	Variable cost-total	205,200
	Fixed cost	245,700
	Total expected cost	450,900