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Laura Lee, the owner of the lodge, is concerned that she incurs expenses around the year without earning any revenues during the off-season. She would
Laura Lee, the owner of the lodge, is concerned that she incurs expenses around the year without earning any revenues during the off-season. She would like to evaluate the possibility of keeping the lodge open during the off-season like some of the other hotel property she owns. Specifically, she wants to consider keeping 30 rooms in the north wing of the lodge open during the off- season at a reduced rate of $100 per room-night. She estimated that the average occupancy rate during the off-season would be about 80% with the reduced room rate of $100 as it would be attractive to couples interested in hiking on the mountain trails. HMC will charge an additional $1,000 per week for management services for every week the north wing of the lodge is kept open in the off-season. HMC will also continue its charge of $50 for every night a room is kept open and $12 for every night a room is occupied during the off-season. Required: 4. Determine the break-even point in terms of average room occupancy rate during the 32 weeks of off-season under Laura Lee's proposal. 5. Determine the average room occupancy rate necessary to generate $3,000 profit before tax per week during the off-season under Laura Lee's proposal. 6. What are the incremental costs if the lodge is kept open? Should the proposal to keep the lodge open be adopted
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