Question
Empire Plaza Hotel is a luxury hotel with 428 rooms. Its regular room rate is $440 per night per room. The hotels cost is $235
Empire Plaza Hotel is a luxury hotel with 428 rooms. Its regular room rate is $440 per night per room. The hotels cost is $235 per night per room and consists of the following.
Variable direct labor and materials cost | $ | 96 | |
Fixed cost | 139 | ||
Total cost per night per room | $ | 235 |
The hotel manager receives an offer to hold the Junior States of America (JSA) convention at the hotel in February, which is the hotels low season with an occupancy rate of under 45%. JSA would reserve 100 rooms for four nights if the hotel could offer a 50% discount, or a rate of $220 per night. The hotel manager is inclined to reject the offer because the cost per room per night is $235. Should the offer from JSA should be accepted or rejected? What is the contribution margin from accepting the offer?
Contribution Margin Analysis
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