A hotel sells its single room nights for an average of $110 and its double room nights for an average of $140. The variable cost per single room night sold is $8 and the variable cost per double room night sold is $12. The hotel has annual fixed costs of $3,472,000. In the past the hotel has sold three single rooms for each double room sold. Based on the 3:1 sales mix achieved in the past, what combination of single and double room sales must be made in order for the hotel to breakeven?

Question

Quizplus · Accepted Answer

To find the breakeven point, calculate the contribution margin for each room type and use the sales mix to determine the total number of rooms needed to cover fixed costs. The contribution margin for a single room is $110 - $8 = $102, and for a double room is $140 - $12 = $128. With a 3:1 sales mix, the weighted average contribution margin is (3*$102 + 1*$128)/4 = $108.50. The breakeven point is $3,472,000 / $108.50 ≈ 32,000 room nights. With a 3:1 mix, this translates to 24,000 singles and 8,000 doubles.

A Hotel Sells Its Single Room Nights for an Average