Answer:
rental price per night $210
variable direct labor and materials $36
fixed costs $5,970,000
assuming 100% occupancy rate during the whole year, fixed cost per unit = $99 per night
total cost per night $135
assuming a 55% occupancy rate = 90.75 rooms per night
fixed costs are equal in both scenarios, so they are not relevant
alternative A alternative B differential
not rent rent to bikers amount
rental revenue $19,057.50 $23,310 ($4,252.50)
per day
variable costs -$3,267 -$4,887 $1,620
total per night $15,790.50 $18,423 ($2,632.50)
x 3 nights $47,371.50 $55,269 ($7,897.50)
By not renting the rooms to the Biker Club, the hotel will be losing $7,897.50 during the 3 nights.
The allocation of fixed costs per night assumes that all the hotel rooms are being rented every night and that is not true, so the total cost per night is not a valid amount. They should allocate fixed costs based on the average occupancy rates per month.
