Suppose the In & Out Motel has annual fixed costs applicable to its rooms of $1.2 million for its 300- room motel, 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) 25%
B) 27.4%
C) 100%
D) 3.65%

Question

Quizplus · Accepted Answer

To find the breakeven occupancy rate, calculate the breakeven point in terms of rooms rented per year: Fixed Costs / (Room Rent - Variable Cost) = $1,200,000 / ($50 - $10) = 30,000 room nights. The total available room nights per year is 300 rooms * 365 days = 109,500 room nights. The breakeven occupancy rate is 30,000 / 109,500 = 27.4%.

Suppose the in & Out Motel Has Annual Fixed Costs