Jason Beckett is the managing partner of a business that has just finished building a 60-room motel. Beckett anticipates that he will rent these rooms for 12,000 nights next year (or 12,000

room-nights). All rooms are similar and will rent for the same price. Beckett estimates the following operating costs for next year:

Data table

Variable operating costs	$ 3 per room-night
Fixed costs
Salaries and wages	$180,000
Maintenance of building and pool	44,000
Other operating and administration costs	220,000
Total fixed costs	$444,000

Requirement 1. What price should

Beckett

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

Part 2

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

Part 3

Requirement 2.

Beckett's

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

5%,

the expected number of room-nights

Beckett

could rent would increase by

5%.

Should

Beckett

reduce prices by

5%?

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

Part 4

(

-

)

=

Part 5

Should

Beckett

reduce prices by

5%?

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,

Beckett

should

should not

reduce the price of the rooms.