1. On average, how many rooms must be rented each night in season for the hotel to breakeven?
We calculate the blended rate for each of the wings using the single room and double room rates and occupancy ratios.
The daily expense during the season is -
Hence to break even we must have occupancy to cover $1,153.42 in costs on a daily basis. Assuming equal occupancy (x) in East Wing and West Wing we get the equation as
(24*30 + 19*50)*x = 1153.42. We get occupancy as 69.1 percent. Hence hotel must rent approximately 56 rooms per night to breakeven
2. The hotel is full on weekends in the ski season. If all room rates were raised $5 on weekend nights, but occupancy fell to 72 rooms instead of 80, what is the revised profit before taxes for the year, per Exhibit 1?
3. What is the proposed incremental contribution margin per occupied room/day during the off-season?
Assuming 40% occupancy that can be expected due to the advertising budget
4. For each alternative in the case, list the annual expenses that are incremental to that decision alternative but are not related to the room/days occupied?
A. Open West wing during offseason
Annual incremental expenses that are not related to rooms/days occupied 1. Increased Advertising expense $4000
2. Increased Repair and Maintenance of $2000
3. Increase Insurance of $500
4. Increased Mrs. Kacheck wages of $3200
5. Increased payroll taxes and fringe benefits of $1312
6. Increased telephone expense $1120
B. Open swimming pool for 12 months
Annual incremental expenses that are not related to rooms/days occupied In addition to the above listed
1. Depreciation Expense of $8000
2. Increased loan interest expense to build pool of 5% annually on $40,000 3. Lifeguard Expense of $400/month
4. Insurance and Taxes of $ 1200
5. Maintenance Costs of $1800
6. Heating Costs $1000
C. Open swimming pool for summer months
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