TOPIC SEVEN-COST MANAGEMENT IN HOTELS (11 marks) Question Four Hot Resorts Ltd o
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TOPIC SEVEN-COST MANAGEMENT IN HOTELS (11 marks) Question Four Hot Resorts Ltd offers two types of accommodation-motel and hotel Data conceming the accommodation is listed below Selling price per unit Variable expenses per unt Contribution margin per unit Motel $100 60 Hotel $120 In the month of September, Hot Resorts Ltd sold 400 motel units and 600 hotel units. Fxed expenses are $50,000 per month Required A Prepare a contributon margin income statement for the month of September for each form of accommodation B Calculate the company's overall monthly break-even point in sales dollars C If the company continues to sell 1,000 units, in total, each month, but the sales mix shits so that an equal number of units of each type of accommodation is being sold, would you expect monthly net income to rise or fail? Explain. Refer to the data in part C. above. If the sales mix shits as explained, would you expect the companý's monthly break-even point to rise or fal? Explain. D.Explanation / Answer
Solution A:
Solution B:
Weighted average contribution margin ratio = Overall contribution / Total Sales revenue = $70,000 / $112000 = 62.50%
Fixed expenses = $50,000
Monthly breakeven point in sales dollar = Fixed expenses / contribution margin ratio = $50,000 / 62.50% = $80,000
Solution C:
Therefore monthly net income will fall by $5,000 if sales mix shifts to equal number of units for each type of accomodation. The reason for the same is that in current scenario, sales mix is 60% for hotel units and its contribution margin per unit is higher than motel units, therefore reduction in share of hotel units will result in decrease in net income.
Solution D:
Reviese weighted average contribution margin ratio = $65,000 / $110,000 = 59.09%
Revised breakeven sales = $50,000 / 59.0909% = $84,615
Therefore monthly breakeven point will rise as shifting of sale mix is resulting in decrease in weighted average contribution margin ratio.
Contribution margin income statement - Hot Resorts Ltd Particulars Motel Hotel Total Sales Revenue $40,000.00 $72,000.00 $112,000.00 Variable cost $24,000.00 $18,000.00 $42,000.00 Contribution margin $16,000.00 $54,000.00 $70,000.00 Fixed Expenses $50,000.00 Net Income $20,000.00Related Questions
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