Question

The Hampton Inn in Stow, Ohio, has two sets of employees, the front desk staff and the housekeeping staff. There is always one front desk clerk on duty at all times, 24/7, and all of the front desk clerks make $8.00 an hour.The housekeeping staff is also paid $8.00 an hour, but they are paid for the number of hours that it takes them to clean the rooms in the hotel. Each room takes 30 minutes to clean, but if a room has not been used the night before, it does not have to be cleaned, so the housekeeping staff work fewer hours on days when the hotel is not as full.The hotel calculates its profitability on a per-room basis, since they have some costs that vary with the number of rooms that are occupied on a particular night. Right now, their costs other than staff wages are marketing expenses of $5,400 per month, management salaries of $60,000 per month, and general overhead (costs like utilities and insurance) of $30,000 per month.The hotel has 50 rooms, all of which rent for the same price per night.Assuming a 30-day month, what are the hotel’s total fixed costs per day? (Be careful, read all of the cost information carefully and think before you answer this question.)What is the hotel’s variable cost per room?If the hotel fills all of its rooms for the night, what price should they charge to break even?What price should they charge to break even with only 70% of the hotel’s rooms sold for the night?What price should they charge to earn a profit margin of 25% when 70% of the hotel’s rooms are sold for the night?

Answer 1

To get total fixed cost

We calculate all expenses

Salaries of clerks = 24hours x 8

= 192

Marketing = 5400/30 = 180

Management = 60000/30 days = 2000

General overhead = 30000/30 = 1000

Total = 180+192+3000+2000

= $3372 a day

2.

It takes half hour to clean a room. And cleaner charges 8 dollars for a full hour.

8x1/2 = $4

3

Question says total rooms = 50

TFC = 3372

Contribution from 1 room

= 3372/50

= $67.44

Price per room = 66.44 + 4

= $71.44

4.

70% occupied rooms = 0.70 x 50

= 35 rooms occupied

3372/35

= $96.34

Charge for a room = 96.34 + 4

= $100.34

5.

Profit margin of 25% given 70% occupancy

3372+(4*35)

= $3512

Percentage on cost = 33.33%

O.3333x3512

= $1171

1172+3512

= $4683

Price for a room = 4683/35

= $133.8