Cost Management (Cost of Service sector) Problem


A hotel operated by a company has 180 single rooms and 60 double rooms. The rent of the double rooms is set at 160% of the rent of the single rooms. The operational costs per day per room are estimated as under:

Variable costs per day for a single room and a double room are Rs.300 and Rs.500 respectively.

Fixed costs per day for a single room and a double room are Rs.500 and Rs.780 respectively.

The average occupancy of both the single rooms and double rooms is expected to be 85% throughout a year of 365 days. In fixing the room rent, the company desires to earn a margin of safety of 20% on its tariff. The company has to pay 20% tax on its tariff.


(i) Calculate the tariff per day per (1) Single room and (2) Double room.

(ii) The hotel intends to reserve the normal occupancy of 12 single rooms for one of its valued corporate customers at a discount (excluding tax) of 10% of the rent what increase in the occupancy of the remaining single room days is required to compensate the loss arising from the discount.