Question

Serenity Hideaways is a beachfront resort specializing in weekend getaways for work-weary customers. The resort rests on a beautiful white-sand beach where guests can hear the gentle turquoise waves from their rooms. In the current market, the resort is priced around average compared to its closest competition. The general manager, Charles Gordon, believes that Serenity Hideaways offers more than competitors and is thinking about increasing the nightly room price from $150 to $190 in order to grow the resort's profits. Serenity incurs certain variable costs each time it rents a room, including the costs associated with the labor and supplies necessary to clean and restock the room. However, the resort does not incur these costs if the room is not booked. Charles has determined that the resort's variable costs are $45 per room. Historically, Serenity Hideaways sells 6,000 room nights per year, and over one year of operations, the resort incurs $217,500 in fixed costs. Answer the following questions based on Serenity's new proposed price point of $190 per night for a hotel room. 1. What is the contribution per unit (room night) for Serenity Hideaways?

Answer 1

At the proposed price point of $190 per room night, the contribution per unit for Serenity Hideaways is $145, which is obtained by subtracting the variable costs of $45 per room from the new room price.

Step-by-step explanation:

To calculate the contribution per unit (room night) for Serenity Hideaways, we need to subtract the variable costs per room night from the room price. The variable costs per room night are $45.

So the contribution per unit is calculated as follows:

New sales price per room - Variable costs per room = Contribution per unit

$190 - $45 = $145

This means that for each room night sold at the new price, Serenity Hideaways will contribute $145 towards covering fixed costs and profit.