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Room Pricing

A proposed budget inn of 150 guestrooms is scheduled to open. The occupancy is expected to be 70%. The owner seeks your advice on pricing. Although he knows that he will modify your recommendation based on revenue management results, he desires a minimum target room rate. Determine the required ADR (Average Daily Rate) from the following information.

Owner investment = $2,000,000

Desired ROI = 20%

Tax rate = 20%

Funds borrowed = $3,000,000

Interest rate = 12% annual

Forecasted annual costs

Fixed charges other than interest = $600,000

Management fees = 5% of room sales

Room department expenses = 25% of room sales.

Undistributed operating expenses = $200,000 + 5% of room sales

1. For a new restaurant food revenues are forecasted to be 2,000,000 per year with a total customer count of a 150,000. Furthermore, total costs of food sold are expected to be 40%, and the standard food cost for one item on the menu was calculated to be $4.00. The menu items price by using the Gross Profit approach should be:

1. When the desired food cost percentage is 40%, the multiple used for determining prices using the ingredient mark-up approach is:

1. When the desired food cost percentage is 30%, and the food cost for a menu item is $5.00 the price using the mark-up approach is:

4. Assume we have a 100-room hotel with its original ADR at $50 and rooms sold per week at 560 rooms (Week 1). The next week (Week 2) the hotel raised the ADR to $55 and sold 550 rooms. The hotel has a rack rate of $80.

Requirements:

1. What is the price elasticity, E, of the demand measured in terms of rooms sold and what is the type of the demand?
2. What are the total room revenues in Weeks 1& 2, respectively?

What are the yields in Weeks 1 & 2, respectively?

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