b) Refer to your results from 2(a), the Appendix and other information. Recommend to HHs directors whether to choose location X or Y for the new hotel

These are results from 2(a):

.Monthly fixed cost = $69000

Variable cost per customer per night = $40

Average price per customer per night = $70

Contribution margin per customer per night = 70-40 = $30

Break-even point = Monthly fixed cost/contribution margin = 69000/30 = 2300

Break even number of customer per month = 2300

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Monthly contribution at max capacity = contribution margin*max monthly capacity

= 30*5000 = 150000

Monthly profit at max capacity = contribution at max capacity - fixed cost

= 150000-69000

= 81000

Monthly profit at max capacity = $81,000

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Break-even point = 2300 customers per month

Expected monthly demand = 4500 customers per month

So,

Margin of safety = 4500-2300 = 2200

% margin of safety = (2200/4500)*100% = 48.89%

around the current hotel locations Appendix: Data about location X and location Y Location X Location Y th 6 months 12 months Estimated time until opening of hotel Most likely target market Tourists Business customers $300 000 $500 000 $30 000 $69000 Capital cost of adapting building to HH standards Monthly fixed costs (including leasing cost) Variable cost per customer per night Estimated average price per customer per night $30 $40 $50 $70 4000 5000 Monthly capacity (customers) Expected monthly demand 3200 4500 Break-even number of customers per month 1500 See Question 2(a) Monthly profit at maximum capacity $50 000 See Question 2(a) UCLES 2017 9609/32/M/J/17