C294 Final
COMM 294
Question 7 (45 marks; suggested time 60 minutes)
Relevant Cost Analysis
Tierra Lago Lodge is situated in an alpine valley. The lodge currently operates for 26 weeks each year (May to October). The lodge has been open since the spring of 2004. Revenue for the lodge is generated through the rental of its thirty (30) suites on a weekly basis. The weekly rental fee is $1,000 per suite. The owner is disappointed with the net loss and with the occupancy rate which averages 70% over the entire 26 weeks. Customers typically book several weeks in advance due to the need to arrange transportation to the remote location of the lodge. During the months of June, July and August there are typically no vacancies. The maintenance manager's salary will increase next year by $3,000 and property tax is expected to increase to $72,000 per year.
The accountant has provided the following data for the past year (2004):
Sales $546,000
Housekeeping VC 83,520
Maintenance VC 56,380
Administration VC 154,600
Utilities 63,680
Property Tax 60,920
Depreciation 120,000
Advertising 55,000
Net Income (48,100)
Additional Information:
Housekeeping: Costs are $120 per week/per suite for cleaning (based on usage) plus a manager’s salary. The manager is contracted on a weekly basis- i.e., s/he is informed by the end of the week whether their services will be needed for the following week.
Maintenance: A $40,000 salary for the manager plus material costs which are traceable to usage (i.e., quick "touch up" work done when the guest vacates the suite).
Administration: Two annual salaries of $50,000 plus a commission of 10% of sales.
Utilities: The manager estimates that utility costs of $20,000 are fixed per year. The heating and electricity are turned on only when the suite is occupied. 60% of the utility costs are due to heating and 40% due to electricity.
Depreciation: Straight-line, book value $960,000, current market value
Question 7 (45 marks; suggested time 60 minutes)
Relevant Cost Analysis
Tierra Lago Lodge is situated in an alpine valley. The lodge currently operates for 26 weeks each year (May to October). The lodge has been open since the spring of 2004. Revenue for the lodge is generated through the rental of its thirty (30) suites on a weekly basis. The weekly rental fee is $1,000 per suite. The owner is disappointed with the net loss and with the occupancy rate which averages 70% over the entire 26 weeks. Customers typically book several weeks in advance due to the need to arrange transportation to the remote location of the lodge. During the months of June, July and August there are typically no vacancies. The maintenance manager's salary will increase next year by $3,000 and property tax is expected to increase to $72,000 per year.
The accountant has provided the following data for the past year (2004):
Sales $546,000
Housekeeping VC 83,520
Maintenance VC 56,380
Administration VC 154,600
Utilities 63,680
Property Tax 60,920
Depreciation 120,000
Advertising 55,000
Net Income (48,100)
Additional Information:
Housekeeping: Costs are $120 per week/per suite for cleaning (based on usage) plus a manager’s salary. The manager is contracted on a weekly basis- i.e., s/he is informed by the end of the week whether their services will be needed for the following week.
Maintenance: A $40,000 salary for the manager plus material costs which are traceable to usage (i.e., quick "touch up" work done when the guest vacates the suite).
Administration: Two annual salaries of $50,000 plus a commission of 10% of sales.
Utilities: The manager estimates that utility costs of $20,000 are fixed per year. The heating and electricity are turned on only when the suite is occupied. 60% of the utility costs are due to heating and 40% due to electricity.
Depreciation: Straight-line, book value $960,000, current market value