A motel has a rooms department and a dining room, and fixed cost is

$335,000. Annual sales revenue and cost figures are as follows:

a. What will be the increase in contribution margin if there is a $20,000 increase in sales revenue only in the rooms department?

b. What will be the increase in contribution margin if there is a $20,000 increase in sales revenue only in the food department?

c. If we want to double the current operating income before tax with variable costs remaining the same and covering fixed costs, what increase in room revenue is needed?

d. If we want to double the current total operating income before tax with direct costs remaining the same and covering fixed costs, what increase in food sales revenue is needed?

e. If we want to double the current operating income before tax with direct costs remaining the same, what will increase in sales revenue have to be if the increase is provided jointly by both departments combined? Assume sales revenue ratios stay as originally stated.

f. What would total sales revenue have to be to achieve all of the following:
A doubling of present operating income before tax.
$5,000 more spent on advertising.

The revenue ratio to change from its present 80 percent for rooms and 20 percent for food to 75 percent for rooms, and 25 percent for food.
Food variable costs to be decreased to 55 percent.

Transcribed Image Text:

Rooms Food Totals Sales revenue Variable costs $440,000 $110,000 $550,000 (132,000) ( 66,000) (198,000) Contribution margin $308,000 $ 44,000 $352,000