Question

John blodgett is the managing partner of a business that has just finished building a 60 room mote boldgett aticipates that he will rent these rooms for 15000 nights nesxt year all rooms are similar and will rent for the same price blodgett estimates the following operating costs for next year the capital invested in the motel is $900000 the paritnarship target return on investment is 25% blodgett expect demand for rooms to be uniform throughout the year he plans to price the rooms at full cost plus markup on full cost to earn the target return on invesment
Variable operating cost $5per room-nigh

Total fixed costs 375000


What price should blodgett charge room night ?what is the markup as percentage of the full requried cost of room might

Answer 1

Answer:

a. Price Blodgett should charge $45 (see below)

b. Markup percentage of the full cost of room night:

Markup = $15

Full Cost =$30

Therefore, percentage of markup to full cost = 15/30 * 100 = 50%

Explanation:

a) Costs Calculations:

                          Unit cost          Total cost

Variable              $5                   $75,000 ($5 x 15,000)

Fixed Cost        $25                $375,000 ($375,000/15,000)

Full Cost          $30                $450,000 ($30 x 15,000, or $75,000 + $375,000)

Markup              $15                $225,000 ($900,000 x 25% returns)

Price to charge $45               $675,000