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Hi,
Question 32 requirement d, March/June 2018 – Alka hotel
The examiner has used 7300 rooms when calculating the occupancy rate and the margin of safety.
My question – the examiner has used 8000 rooms in the breakeven chart to show the BEP and also to explain total cost line and revenue line (indicating that the occupied rooms are 8000)
So why use 7300 rooms for calculating the occupancy rate and MOS ?I assume that you are referring to part (d) of the question which is asking you to interpret the graph in the question. It would obviously not be possible for us to draw the graph because we are not given information separately about the effect of operating a restaurant.
In drawing the graph, the examiner has chosen to show the maximum occupied rooms as 8,000, but could have chosen any figure in order to draw the line. However since it is clear from the graph that if the occupancy was 8,000 rooms then the revenue would be $2,000,000 and that the total cost would be $1,560,000. On that information we are able to calculate the variable cost per room and the revenue per room. (These can only be calculated from the graph because the information is not given elsewhere).
As far as the margin of safety is concerned, again it is marked on the graph that the new budgeted occupancy is 7,300 rooms and that the breakeven is 5,161 rooms. You are not expected to calculate these yourself – it is given on the graph and there is not enough information to be able to calculate it yourself However knowing that the budgeted occupancy is now 7,300 rooms we are able to calculate the new budgeted occupancy rate.
Again part (d) is checking that you can interpret the graph (which is why only 4 of the marks were for calculations, the other 4 for discussion).
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