Hostel Maharaja at KTM has 100 rooms. Average room rate is Rs. 800 per room night. Variable cost is Rs. 300 per room night. Monthly fixed costs to the hotel are Rs. 480,000.
Assume a 30-day month occupied.
Required:
i) How many rooms must be occupied per day to break-even?
ii) How many rooms must be occupied per month to make a monthly profit of Rs. 360,000?
Answer (2)
To solve this problem, we need to determine the number of room nights that need to be sold both per day and per month to achieve break-even and a specific profit target.
First, let's clarify some important details for the calculations:
Room Rate: Rs. 800 per room night
Variable Cost per Room Night: Rs. 300
Monthly Fixed Costs: Rs. 480,000
Days in a Month: 30 days
Part (i): Break-even Analysis
The break-even point is when total revenue equals total costs (both fixed and variable).
Break-even Formula:
Break-even Point (in room nights) = Room Rate − Variable Cost Fixed Costs
Substitute the given values: Break-even Point (in room nights) = 800 − 300 480 , 000 = 500 480 , 000 = 960 room nights per month
Since the hotel operates for 30 days: Rooms per Day (break-even) = 30 960 = 32 rooms
Thus, to break even, the hotel must occupy 32 rooms per day .
Part (ii): Monthly Profit of Rs. 360,000
To make a profit, the hotel's total revenue needs to cover all costs and the desired profit.
The total required revenue for the target profit: Total Revenue for Profit = Fixed Costs + Profit Target Total Revenue for Profit = 480 , 000 + 360 , 000 = 840 , 000 Rs
Calculate the number of room nights needed: Rooms Needed per Month = Room Rate − Variable Cost Total Revenue for Profit Rooms Needed per Month = 500 840 , 000 = 1 , 680 room nights
For a 30-day month: Rooms per Day (for profit) = 30 1 , 680 = 56 rooms
Therefore, to achieve a monthly profit of Rs. 360,000, the hotel must occupy 56 rooms per day .
In summary, the hotel must occupy 32 rooms per day to break-even and 56 rooms per day to achieve the desired profit.
To break-even, Hostel Maharaja must occupy 32 rooms per day. To achieve a monthly profit of Rs. 360,000, they need to occupy 56 rooms per day.
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