Price.You examine the average selling price (i.e., average daily rate) for the past two years and decide that the hotel's room rate for next year will continue the same trend; in other words, you will realize the same percentage increase (or decrease) that was experienced in the past year. For example, if your rate increased 8% from 2019 to 2020, you will then forecast the 2021 room rate

to be 8% above 2020's room rate.

Costs.Your hotel's variable and fixed costs are obtained from the (A) case, in which you estimated the hotel's cost equation. After consultation with industry experts, you predict fixed costs will be the same next year. Further, you expect the variable cost per room-night to increase 4.5% due to inflation. Based on your analysis of local market data, you believe that sales volumes will remain flat; that is, the number of rooms rented in 2021 will be unchanged from the 2020 sales volume.

B.2. Required

1. What are the assumptions of CVP analysis?

2. Compute the breakeven sales volume for 2021.

3. Calculate the margin of safety.

4. Determine the degree of operating leverage. What happens to leverage at different levels of planned sales volume? Hint: Compute operating leverage at sales volumes of 50% and 120% of the 2021 planned sales volume.

5. Provide a CVP plot and label the different attributes of the plot.