Question

Accepting Business at a Special Price for a Service Company Cityscape Hotels has 200 rooms available in a major metropolitan city. The hotel is able to attract business customers during the weekdays and leisure customers during the weekend. However, the leisure customers on weekends occupy fewer rooms than do business customers on weekdays. Thus, Cityscape plans to provide special weekend pricing to attract additional leisure customers. A hotel room is priced at $180 per room night. The cost of a hotel room night includes the following: Cost Per Room Night (at normal occupancy) $ 23 Housekeeping service Utilities Amenities w i Hotel depreciation Hotel staff (excluding housekeeping) Total 42 $130 a. What is the contribution margin for a room night if only the hotel depreciation and hotel staff are assumed fixed for all occupancy levels? $ b. What should be considered in setting a discount price for the weekends? than the variable costs per room night so that the resulting contribution margin contributes to The discount price should be set fixed costs and profitability.

Answer 1

a. Variable cost per room night = Housekeeping service + Utilities + Amenities

= 23+7+3

= $33

Contribution margin per room night = Room rent per room night - Variable cost per room night

= 180-33

= $147

The contribution margin for a room night if only the hotel depreciation and hotel staff are assumed fixed for all occupancy level = $147

b. The discount price should be st higher than the variable costs per room night so that the resulting contribution margin contributes to fixed costs and profitability.

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