The monthly fixed costs of operating a 30-unit motel are $28,000. The price per unit per night for next year is set at $110. Costs arising from rentals on a per-unit per-day basis are $12 for maid service, $6 for supplies and laundry, and $6 for heat and utilities.
a. Based on a 30-day month, at what average occupancy rate will the motel break even?
b. What will the motel’s net income be at an occupancy rate of:
(i) 40%?
(ii) 30%?
c. Should the owner reduce the price from $110 to $94 per unit per night if it will result in an increase in the average occupancy rate from 40% to 50%? Present calculations that justify your answer.