You are considering the purchase of a hotel with 20 rooms. If you buy it the fixed costs are expected to be $200,000 per year. The variable costs of renting a room for one night include $20 for maid service and $5 for utilities and other costs. Assume no taxes.

a If you expect to rent the rooms for $90 how many rooms must you rent during the year?

Breakeven point (units) = Total Fixed Costs
Contribution Margin per Unit

= $200,000
$90 - ($20 + $5)

= 3,077 units

b. If you want to have a profit of $50,000 and expect to be at 70% of capacity for the 365 days of the year, what price per room would you expect to have to change?

No. of Rooms = Total Fixed Costs + Net Income
Contribution Margin per Unit

20 x 365 days x 0.70 = $200,000 + $50,000
(X - $25)

5,110X - 127,750 = 250,000

5,110X = 377,750

X = $73.92

You perform the following profitability analysis on the products that you manufacture

Product A Product B Product C

Revenues 300,000 800,000 100,000

Variable Costs 200,000 500,000 40,000

Fixed Costs 100,000 100,000 100,000

Profit 0 200,000 (40,000)

Number of units 1,000 10,000 100
made and sold

Fixed costs are sunk and there is excess capacity.

a. Should product C be dropped? Capacity.

Product C should not be dropped because fixed cost of Product C will remain at $100,000, incurring an increase in the loss from $40,000 to $100,000.

b. Which product would provide the most profit if one more unit were sold?

Revenues 300,000 800,000 100,000

Variable Costs 200,000 500,000 40,000

Contribution 100,000 300,000 60,000
Margin

Number of units 1,000 10,000 100
made and sold

Contribution 100 30 600
Margin/Unit

Product C will provide the most profit if one more unit were sold.

please see the attached file.