Use this information to answer the next two questions. The following data relates to the Bravo Hotel that provides overnight accommodation but no other services:
Fixed costs: $240,000 per annum; Variable cost per room night sold: $15; Average selling price per room night: $65; Annual after tax target profit: $288,000; Bravo's profit taxed at: 40%.
-What annual number of rooms sold does the Bravo Hotel have to achieve in order to achieve its target level of profit?

Question

Quizplus · Accepted Answer

To find the number of rooms needed to achieve the target profit, we first calculate the required pre-tax profit by dividing the after-tax target profit by (1 - tax rate): $288,000 / (1 - 0.40) = $480,000. Then, we use the formula: (Fixed Costs + Pre-tax Profit) / (Selling Price - Variable Cost) = ($240,000 + $480,000) / ($65 - $15) = 14,400 rooms.

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