Suppose the Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel, average daily room rents of $50, and average variable costs of $10 for each room rented.It operates 365 days per year.The percent of occupancy for the year needed to breakeven is _____.
A)3.65%
B)27.4%
C)25%
D)100%

Question

Quizplus · Accepted Answer

First, we need to calculate the total revenue the hotel generates in a year:
Total Revenue = Average Daily Room Rent x Number of Rooms x Days Open
Total Revenue = $50 x 300 x 365
Total Revenue = $5,475,000

Next, we need to calculate the total variable costs for the year:
Total Variable Costs = Average Variable Cost per Room x Number of Rooms Rented x Days Open
Total Variable Costs = $10 x X x 365

To breakeven, the hotel's total revenue must equal its total costs, so:
Total Revenue = Total Fixed Costs + Total Variable Costs

Substituting in the values we have, we get:
$5,475,000 = $1,200,000 + ($10 x X x 365)
$5,475,000 = $1,200,000 + $3,650 X
$4,275,000 = $3,650 X
X = 1,172.6

Therefore, the hotel needs to rent out 1,172.6 rooms per day, on average, to breakeven. To calculate the occupancy rate needed to achieve this, we divide by the total number of rooms:
Occupancy Rate = (X / Number of Rooms) x 100%
Occupancy Rate = (1,172.6 / 300) x 100%
Occupancy Rate = 3.91 x 100%
Occupancy Rate = 27.4%

So the answer is B) 27.4%.

Suppose the Holiday Inn Hotel Has Annual Fixed Costs Applicable