a)   Calculate the average room rate the hotel should charge to achieve their required return on capital. You may assume a corporation tax rate of 20 per cent and ignore any problems associated with double or single occupancy. 

This question requires the Hubbard approach to the calculation of average room rate. This is calculated by starting with the required return on capital invested. By adding back taxation, finance costs and fixed operating expenses, one arrives at the total contribution required to achieve the return on capital. By deducting the contribution from other revenue producing departments, one arrives at a room’s department contribution figure. This figure divided by the forecast number of bed-nights will calculate a contribution per room used. By adding the estimated variable cost per room, an average selling price per room is calculated. 

b)   If the double rooms are sold at a premium of €20 above the single rooms, what prices should be charged for each single and double room to achieve the owners required rate of return. You may assume that double occupancy as a percentage of overall occupancy is 60 per cent and there is no change to variable cost per room.

The approach in this part of the question is to let X = price of a single room. If that is the case the X + €20 = the price of a double room. Total sales is made up of 40% single rooms and 60% double. 

c) What other considerations would you take into account when looking for strategies to improve room occupancy.     

• Level of competition
• Seasonality
• The level of demand
• The state of the local and foreign economies
• The cost structure of the business.
• Local events
• Advertising
• Offering package deals to new and existing customers during off-peak period