ason

BassetBasset

is the managing partner of a business that has just finished building a 60-room motel.

BassetBasset

anticipates that he will rent these rooms for

20 comma 00020,000

nights next year (or

20 comma 00020,000

room-nights). All rooms are similar and will rent for the same price.

BassetBasset

estimates the following operating costs for next year:

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(Click the icon to view the operating costs.)

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(Click the icon to view additional information.)Read the requirements

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.

Requirement 1. What price should

BassetBasset

charge for a room-night? What is the markup as a percentage of the full cost of a room-night?

Begin by selecting the formula, then enter the amounts and solve for the room price per night.

		+		=	Price per room-night
		+		=		per room-night

What is the markup as a percentage of the full cost of a room-night? (Enter the markup as a percentage, X%.)

(				=	Markup as a % of full cost
(				=		% markup

Requirement 2.

BassetBasset's

market research indicates that if the price of a room-night determined in Requirement 1 is reduced by

1515%,

the expected number of room-nights

BassetBasset

could rent would increase by

2020%.

Should

BassetBasset

reduce prices by

1515%?

Show your calculations.

Begin by calculating the new contribution margin which will help you make your decision. Select the formula first, then enter the amounts to calculate the contribution margin. (Round the new price per room to two decimal places. Round the contribution margin to the nearest dollar.)

(

-

)

=

New contribution margin

(

-

)

=

Should

BassetBasset

reduce prices by

1515%?

Because the contribution margin at the reduced price is

less than

greater than

the original contribution margin at the selling price you calculated in requirement 1,

BassetBasset

should

should not

reduce the price of the rooms.

$ 4 per room-night

Fixed costs

Salaries and wages

$175,000

Maintenance of building and pool

35,000

Other operating and administration costs

150,000

Total fixed costs

$360,000

What price should BassetBasset charge for a room-night? What is the markup as a percentage of the full cost of a room-night?
2.	BassetBasset's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 1515%, the expected number of room-nights BassetBasset could rent would increase by 2020%. Should BassetBasset reduce prices by 1515%? Show your calculations.