Purpose: Name Assignment #1: Good Night Motel
Background:
• Justin McGregor, owner of Good Night Motel is offered a proposition from George
Alward that would fill up all 30 units of the motel from Friday 10/26/12 – Saturday
10/27/12
o The renters are delegates to a church convention which fits the family-style reputation
that the motel wants to maintain
o Alward offered to pay $40/unit as opposed to the normal $80/unit
• The dates that Alward wants are during the slow season where it struggled to fill up to ¼
of the rooms
o In recent years, a further dip of an additional 7%-15% is expected in room occupancy
• Revenues are expected to remain flat for the next several years
Issues and Qualitative factors:
• McGregor doesn’t want to take the deal because he says that Good Night barely broke
even in the 2012 and is afraid that giving out these rooms for ½ price will be unfavorable
• McGregor is also afraid that giving this deal might set future precedents
Guidance:
• A Cost Volume Profit (C-V-P) analysis should be done to determine breakeven point and
contribution margins
Computation:
• McGregor’s take on the breakeven point in incorrect. He looked at the income statement
and came in the conclusion that the motel only made $3,177 in 2012.
o This is incorrect because depreciation is not a cash outflow and should not be
considered.
Total operating expense $385,973.00
less: depreciation $54,700.00
Total cash outflow $331,273.00
o He only needs to earn $331,273.00 in revenue to break even instead of the original
$385,973.00 that he thought. He earned $389,150.00 which is well above that amount.
