B Calculating break-even occupancy rate
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Name of assignment
Calculating the break-even occupancy rate.
The break-even point (BEP) is the point at which total cost and total revenue are equal, i.e. "even". There is no loss or profit, and the hotel has "broken even". In short, all costs that must be paid are paid, and there is neither profit or loss.
The break-even occupancy rate represents the hotel occupancy - in either units (occupied rooms) or revenue (sales) terms - that is required to cover the total costs of the hotel, consisting of both fixed and variable costs of the hotel. Total profit at the break-even point is zero. It is only possible for a hotel to pass the break-even point if the euro value of sales is higher than the variable cost per occupied room. This means that the price of the hotel room must be higher than what the hotel spends for the room to cover the initial costs they had (variable and fixed costs). Once your hotel surpasses the break-even price, you start making a profit.
Situation
Being a family hotel, the Bergman family did not care too much about financial statements. Of course, a number of key metrics have been looked at, but over the years but numerous important ratios have never been calculated. Also, an in-depth analysis of the break-even occupancy rate has never been made. In hospitality industry, obviously, having a clear and thorough insight in your finances is very important. Although information is available, it seems, though, that the hotel has never used the available data to its full potential. With the new management team of the hotel, the hotel owners expect this to improve as well.
Goal
Diving deeper into the available figures might bring new insights that could help in analyzing the results and thus make better decisions for the years to come. Especially an analysis of the break-even occupancy rate could be helpful in this.
Task, deliverable
Analyse the available data about the operating review, and calculate the break-even occupancy rate for the Emerald Forest Hotel.
Draw your conclusions and give concrete information to Jill Jandal about the analysis you did.
Assessed elements
- Is the break-even analysis complete, does it contain all elements?
- Are the indicated figures explainable and in line with the operating reviews and other variables of the hotel?
- What are your conclusions from the break-even analysis and why?
- Are the conclusions, drawn from the break-even analysis, correct and concrete?
- Are all the sources accounted for?
Additional information
- Operating review
- Break-even analysis
- How To Calculate And Monitor Your Break-Even Point
- Understanding the break-even point when it comes to room revenue
- Use This Formula to Calculate a Break-even Point
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