Your business has 80 rooms and it usually rents out with the following information: Half of all the rooms are single rooms at $50, the rest are double rooms at $30 The motel has annual fixed costs of $281,500 and variable costs average $9 per room occupied

Your business has 80 rooms and it usually rents out with the following information:

Half of all the rooms are single rooms at $50, the rest are double rooms at $30

The motel has annual fixed costs of $281,500 and variable costs average $9 per room occupied.

Required:

a) Calculate the motel’s annual breakeven level and its occupancy percentage.

b) Calculate the annual occupancy percentage necessary to provide a net income after tax of $15,000 based on a tax rate of 20%; assuming the average room rate will increase by 10%. Variable cost per unit sold will increase to $12 and $12,500 per year will be spent on advertising.

Prepare a contribution margin income statement to confirm the CVP calculations in part b.