# Help with this accounting question ?Watch

#1
Number of Rooms 80

Investment
Land Cost 770,000
Acquisition Fees 214,000
Build Cost 2,621,000
Green Technology 0
Total Investment -

Projected P&L
Occupancy 80%
Average Room Rate £47.22
Total Sale 1,100,000
Variable Costs 360,000
Fixed Costs 160,000
Profit

I need help calculating profit, return on investment and payback

This is what i did

Variable cost = occupancy *number of rooms * variable cost
Variable cost = 80% of 80 = 64 * 360,000 = 23,040,000

Fixed cost = number of rooms*fixed cost = 12,800,000

Total cost = 35,840,000

Revenue = 1,100,000*£47.22 = 51,942,000

Profit = £16,102,000

Return = £16,102,000 - 3,602,000 = 12,497,000

Therefore return on investment is 12,497,000/3602000 = 346.66%

Is that correct ????
0
5 years ago
#2
(Original post by AtifJaved)
Is that correct ????
No, it's not.

Variable cost = occupancy *number of rooms * variable cost
Variable cost = 80% of 80 = 64 * 360,000 = 23,040,000
The variable cost of 360,000 is already the total variable cost, so no need to calculate this - maybe next time just make a reality check first, i.e. where in the world would you have a variable cost per room and year of £360,000. Or maybe I'm just mistaken and these sort of examples shouldn't represent the real world.

Revenue = 1,100,000*£47.22 = 51,942,000
Now, why do you think you've got to calculate revenue like this? Why would you multiply the average rate per room (and night) with the total sale?

Revenue = sales, so you've got that covered, and just to prove the point:

80 rooms * 365 days * 80% occupation rate * £47.22 average room rate = £1,103,059.20 (when calculating in these dimensions the £3,059.20 become almost irrelevant).

With this insight, I'll let you start again, just one question, where are you going to school / university?
0
#3
(Original post by c2uk)
No, it's not.

The variable cost of 360,000 is already the total variable cost, so no need to calculate this - maybe next time just make a reality check first, i.e. where in the world would you have a variable cost per room and year of £360,000. Or maybe I'm just mistaken and these sort of examples shouldn't represent the real world.

Now, why do you think you've got to calculate revenue like this? Why would you multiply the average rate per room (and night) with the total sale?

Revenue = sales, so you've got that covered, and just to prove the point:

80 rooms * 365 days * 80% occupation rate * £47.22 average room rate = £1,103,059.20 (when calculating in these dimensions the £3,059.20 become almost irrelevant).

With this insight, I'll let you start again, just one question, where are you going to school / university?

Thank you !! i knew i was doing something wrong the numbers didn't match up.
0
X

new posts
Back
to top
Latest
My Feed

### Oops, nobody has postedin the last few hours.

Why not re-start the conversation?

see more

### See more of what you like onThe Student Room

You can personalise what you see on TSR. Tell us a little about yourself to get started.

### University open days

• University of Stirling
Thu, 26 Sep '19
• Heriot-Watt University
Fri, 27 Sep '19
• Royal Holloway, University of London
Sat, 28 Sep '19

### Poll

Join the discussion

#### Are you attending a Global Climate Strike?

Yes, I'm striking (33)
7.42%
No, but I wanted to/I support the cause (262)
58.88%
No (150)
33.71%