Question: A motel has a rooms department and a dining room, and total fixed cost of the operation is $335,000. Annual sales revenue and cost figures are as follows:

a. What will be the increase in contribution margin if there is a $20,000 increase in sales revenue only in the rooms department?

b. What will be the increase in contribution margin if there is a $20,000 increase in sales revenue only in the food department?

c. If we want to double the current operating income before tax with variable costs remaining the same and covering fixed costs, what increase in room sales revenue is needed?

d. If we want to double the current total operating income before tax with direct costs remaining the same and covering fixed costs, what increase in food sales revenue is needed?

e. If we want to double the current operating income before tax with direct costs remaining the same, what will increase in sales revenue have to be if the increase is provided jointly by both departments combined? Assume sales revenue ratios stay as originally stated.

f. What would total sales revenue have to be to achieve all of the following:

¦ Present operating income before tax is doubled

¦ $5,000 more is spent on advertising

¦ The sales revenue ratio changes from 80% for rooms and 20% for food to 75% for rooms and 25% for food

¦ Food variable costs decrease to 55%