Question

The Typhoon Resort, which has 100 rooms, has currently been experiencing an occupancy dip to a 60.00% level. The current rack rate is $80.00 with a marginal cost of $20.00 per room. The management of this resort would like to see the options when they apply $10.00 and 10.00% discounts from the current rack rate separately. Based on these two discount situations, what equivalent occupancy percentages must be achieved to maintain the same levels of contribution margin for both $10.00 and 10.00% discounts from the current rack rate

Answer 1

Answer:

the current total contribution margin = 100 x 60% x ($80 - $20) = $3,600 per day

scenario 1: $10 discount

$3,600 = 100 x ?% x ($70 - $20)

$3,600 = $5,000 x ?%

$3,600 / $5,000 = ?%

occupancy rate = 72%

scenario 2: 10% discount

$3,600 = 100 x ?% x ($72 - $20)

$3,600 = $5,200 x ?%

$3,600 / $5,200 = ?%

occupancy rate = 69.23%