Jason Brady is the managing partner of a business that has just finished buildin

Question

Jason Brady is the managing partner of a business that has just finished building a 60-room motel. Brady anticipates that he will rent these rooms for 15,000 nights next year or 15,000 room-nights). All rooms are similar and will rent for the same price. Brady estimates the following operating costs for next year EE (Click the icon to view the operating costs.) 0 (Click the icon to view additional information.) Read the requirements Requirement 1. What price should Brady 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 Target contribution margin per room-night Variable cost per room-night Price per room-night + 47 per room-night What is the markup as a percentage of the full cost of a room-night? (Enter the markup as a percentage, x%.) Markup per room Full-cost per room Markup as a % of full cost 67 % markup 20 30 Requirement 2. Brady's market research indicates that if the price of a room-night determined in Requirement 1 is reduced by 10%, the expected number of room-nights Brady could rent would increase by 10%. Should Brady reduce prices by 10%? Show your calculations Begin by calculating the new contrbution 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 Data Table More Info Variable operating costs Fixed costs $ 3 per room-night The capital invested in the motel is $1,500,000. The partnership's target return on investment is 20%. Brady expects demand for rooms to be uniform throughout the year. He plans to price the rooms at full cost plus a markup on full cost to earn the target return on investment. Salaries and wages Maintenance of building and pool Other operating and administration costs 177,000 38,000 190,000 405,000 Print Done Total fixed costs PrintDone Requirements What price should Brady charge for a room-night? What is the markup as a percentage of the full cost of a room-night? Brady's market research indicates that if the price of a room-night determined in requirement 1 is reduced by 10%, the expected number of room-nights Brady could rent would increase by 10%. Should Brady reduce prices by 10%? Show your calculations 1. 2. PrintDone

Explanation / Answer

Requirement 2

(New price per room night - Variable cost per room night) * Total room night = New Contribution margin

( 45 - 3 ) * 16500 = New contribution margin

42 * 16500 = New contribution margin

693000 = New contribution margin

Old contribution margin = (50 - 3) * 15000 = 47 * 15000 = 705000

Brady should not reduce the price by 10%.

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