2. (9 points) A motel has a rooms department and a dining room, and total fixed
ID: 2572519 • Letter: 2
Question
2. (9 points) A motel has a rooms department and a dining room, and total fixed cost of the operation is S335,000. Annual sales revenue and cost figures are as follows Food Rooms $440,000 $110,000 Totals $550,000 Sales revenue Variable costs Contribution margin 2.000) 66,000) $308,000 S44,000 98,000) $352,000 a. What will be the increase in contribution margin if there is a S30,000 increase in sales revenue b. What will be the increase in contribution margin if there is a S30,000 increase in sales revenue c. If we want to double the current operating income before tax with variable costs remaining the d. If we want to double the current total operating income before tax with direct costs remaining the e. If we want to double the current operating income before tax with direct costs remaining the only in the rooms department? only in the food department? same and covering fixed costs, what increase in room sales revenue is needed? same and covering fixed costs what increase in food sales revenue is needed? same, what will increase in sales revenue have to be if the increase is provided jointly by both departments coming? Assume sales revenue ratios stay as originally stated. f. What would total sales revenue have to be to achieve all of the following: Present operating income before tax is doubled $10,000 more is spent on advertising The sales revenue ratio changes from 80% for rooms and 20% for food to 75% for rooms and 25% for food Food variable costs decrease to 50% * - ·Explanation / Answer
Answer a.
Rooms:
Sales Revenue = $440,000
Contribution Margin = $308,000
Contribution Margin Ratio = Contribution Margin / Sales Revenue
Contribution Margin Ratio = $308,000 / $440,000
Contribution Margin Ratio = 70%
Increase in Sales = $30,000
Increase in Contribution Margin = Contribution Margin Ratio * Increase in Sales
Increase in Contribution Margin = 70% * $30,000
Increase in Contribution Margin = $21,000
Answer b.
Food:
Sales Revenue = $110,000
Contribution Margin = $44,000
Contribution Margin Ratio = Contribution Margin / Sales Revenue
Contribution Margin Ratio = $44,000 / $110,000
Contribution Margin Ratio = 40%
Increase in Sales = $30,000
Increase in Contribution Margin = Contribution Margin Ratio * Increase in Sales
Increase in Contribution Margin = 40% * $30,000
Increase in Contribution Margin = $12,000
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