Jason Bartlett is the managing partner of a business that has just finished building a 60-room motel. Bartlett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Bartlett estimates the following operating costs for next year: Variable operating costs $ 5 per room-night Fixed costs Salaries and wages $171,000 Maintenance of building and pool 42,000 Other operating and administration costs 162,000 Total fixed costs $375,000 The capital invested in the motel is $900,000. The partnership's target return on investment is 25%. Bartlett expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. 1. What price should Bartlett charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2. Bartlett's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 15%, the expected number of room-nights Bartlett could rent would increase by 20%. Should Bartlett reduce prices by 15%? Show your calculations.
Jason Bartlett is the managing partner of a business that has just finished building a 60-room motel. Bartlett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Bartlett estimates the following operating costs for next year: Variable operating costs $ 5 per room-night Fixed costs Salaries and wages $171,000 Maintenance of building and pool 42,000 Other operating and administration costs 162,000 Total fixed costs $375,000 The capital invested in the motel is $900,000. The partnership's target return on investment is 25%. Bartlett expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. 1. What price should Bartlett charge for a room-night? What is the markup as a percentage of the full cost of a room-night? 2. Bartlett's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 15%, the expected number of room-nights Bartlett could rent would increase by 20%. Should Bartlett reduce prices by 15%? Show your calculations.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Jason Bartlett is the managing partner of a business that has just finished building a 60-room motel. Bartlett anticipates that he will rent these rooms for 15,000 nights next year (or 15,000 room-nights). All rooms are similar and will rent for the same price. Bartlett estimates the following operating costs for next year:
|
Variable operating costs
|
$ 5 per room-night
|
|---|---|
|
Fixed costs
|
|
|
Salaries and wages
|
$171,000
|
|
Maintenance of building and pool
|
42,000
|
|
Other operating and administration costs
|
162,000
|
|
Total fixed costs
|
$375,000
|
The capital invested in the motel is $900,000. The partnership's target
|
1.
|
What price should
Bartlett
charge for a room-night? What is the markup as a percentage of the full cost of a room-night? |
|
2.
|
Bartlett's
|
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education