Hotel$+$ is considering building a budget hotel that offers clean small rooms with bathrooms. The company anticipates that $120$ rooms will rent for $39,600$ room$-$nights per year. The market price for equivalent rooms is $$60$ per night. Hotel$+$ estimates that the capital cost will be $$6,500,000$ and the company would like an annual return of $10\%.$ Following are the estimated annual operating costs:

Variable operating costs $ $21$ per room night

Fixed costs:

Salaries and wages $ $420,000$

Building maintenance $89,000$

General administration $280,000$

Total fixed costs $ $789,000$

Required

$1.$ What is the full cost per room$-$night?

$2.$ Can Hotel$+$ meet the targeted return on investment based on the estimated costs and revenue? Show your calculations.

$3.$ A tour operator has offered $$30$ per night for $20$ rooms during a time of the year that there is likely to be at least that many rooms vacant. Should Hotel$+$ accept this offer? Show your calculations

Answer rating: 100% (QA)

1 Full Cost per Roomnight To calculate the full cost per roomnight we need to consider both variable ... View the full answer