Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million for its 300-room hotel.Average daily room rents are $50 per room and average variable costs are $10 for each room rented.It operates 365 days per year.What percent of occupancy is needed to breakeven?
A)3.65%
B)25%
C)27.4%
D)34.3%

Question

Quizplus · Accepted Answer

Total revenue per day = (number of rooms rented per day) x (average daily room rent)
Total variable cost per day = (number of rooms rented per day) x (average variable cost per room)
Total revenue per day must cover total fixed cost per day plus total variable cost per day for the hotel to break even.
Using algebra, we can calculate the number of rooms that must be rented each day to break even:
(number of rooms rented per day) x ($50 - $10) = $1,200,000 / 365 
(number of rooms rented per day) x $40 = $3,287.67 
(number of rooms rented per day) = 82.19 
To find the occupancy rate needed to rent 82.19 rooms per day out of 300 rooms available: 
Occupancy rate = (82.19 x 365) / (300 x 365) x 100% 
= 27.4% 
Therefore, the answer is C.

Suppose a Holiday Inn Hotel Has Annual Fixed Costs Applicable