Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 4

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 weekends. 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:

a. What is the contribution margin for a room night if only the hotel depreciation and hotel stair are assumed fixed for all occupancy levels
b. What should be considered in setting a discount price for the weekends