The Lake View hotel has 60 rooms and is open for 360 days a year, giving a total number of room nights of 60 x 360 = 21,600. The charge for each room is £90 per night and the variable costs of each night's stay are £25 plus breakfast costing £10. Total fixed costs of the hotel are £715,000 per annum. The hotel has an occupancy rate of 80% each year. What is the margin of safety for the Lake View hotel in room nights?

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Quizplus · Accepted Answer

The margin of safety is the difference between the actual number of room nights sold and the breakeven number of room nights. The breakeven number of room nights is calculated as follows:Breakeven number of room nights = Fixed costs / (Room rate - Variable costs)= 715,000 / (90 - 25 - 10)= 715,000 / 55= 13,000The actual number of room nights sold is 21,600. Therefore, the margin of safety is:Margin of safety = Actual number of room nights sold - Breakeven number of room nights= 21,600 - 13,000= 8,600

The Lake View Hotel Has 60 Rooms and Is Open