Problemjane botosan operates a bed and breakfast hotel in a, Ask an Expert

Accounting

Problem:

Jane Botosan operates a bed and breakfast hotel in a resort area near Lake Michigan. Depreciation on the hotel is $60,000 per year. Jane employs a maintenance person at an annual salary of $32,000 and a cleaning person at an annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent at an average price of $60 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $10 per person per night and the cost of food which is $5 per person per night.

Required:

Question 1: Determine the number of rentals and the sales revenue Jane needs to break even.

Question 2: If the current level of rentals is 3,500, by what percentage can rentals decrease before Jane has to worry about having a net loss?

Question 3: Jane is considering upgrading the breakfast service to attract more business and increase prices. This will cost an additional $3 for food costs per person per night. Jane feels she can increase the room rate to $66 per person per night. Determine the number of rentals and the sales revenue Jane needs to break even if the changes are made.

Note: Be sure to show how you arrived at your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164631

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