John Red is the managing partner of a partnership that has just finished building 60-room motel.  Beck

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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John Red is the managing partner of a partnership that has just finished building 60-room motel.  Beck anticipates that he will rent these rooms for 16,000 nights next year (or 16,000 room-nights).  All rooms are similar and will rent for the same price.  Beck estimates the following operating costs for next year:

Variable operating costs                                                              P30 per room-night

Fixed costs

     Salaries and wages                                                                P1,750,000

     Maintenance of building and pool                                                 370,000

     Other operating and administration costs                                  1,400,000

        Total fixed costs                                                                   P 3,520,000

The capital invested in the motel is P9,600,000.  The partnership's target return on investment is 25%.  Beck expects demand for rooms to be about uniform throughout the year.  He plans to price the rooms at cost plus a markup to earn the target return on investment.  What price should Beck charge for a room-night?

 

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