What is the full cost per room-night? Can Hotel+ meet the targeted return on investment based on the estimated costs and revenue? Show your calculations. A tour operator has offered $30 per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Hotel+ accept this offer? Show your calculations.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Question 4.1                                                                                                                        

Hotel+ is considering building a budget hotel that offers clean small rooms with bathrooms. The company anticipates that 120 rooms will rent for 39,600 room-nights per year. The market price for equivalent rooms is $60 per night. Hotel+ estimates that the capital cost will be $6,500,000 and the company would like an annual return of 10%. Following are the estimated annual operating costs:

 

Variable operating costs

$ 21 per room night

Fixed costs:

 

Salaries and wages

$ 420,000

Building maintenance

89,000

General administration

280,000

Total fixed costs

$ 789,000

 

Required

  1. What is the full cost per room-night?
  2. Can Hotel+ meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.
  3. A tour operator has offered $30 per night for 20 rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Hotel+ accept this offer? Show your calculations.
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