# Skyview Manor Case Study

Question 1.

Break-even point (per unit) = Total Fixed Costs / Average Revenue – Variable Costs per Unit Total Fixed Costs = Total Costs – Variable Costs

Total Costs = $138,410 (Total Expenses, Exhibit 1)

In this case, Variable Costs would include Cleaning Supplies, Linen Service, and one half of Miscellaneous expenses; therefore, Total Variable Costs = 1,920 + 13,920 + 3,657 = $19,497 Thus, Total Fixed Costs = $138,410 - $19,497 = $118,913

Average number of rooms occupied per season = 120 days x 80 rooms x 80% occupancy rate = 7,680 Variable Cost per Unit = $19,497/7,680 = $2.54

Average revenue (price) = $160,800/7,680 = $20.94

Thus, break-even point = $118,913/($20.94 - $2.54) = 6462 room nights total / 120 days = 54 rooms Question 2.

Weekend nights for the season = 120 nights/7 nights in a week x 2 weekend nights = 34 weekend nights Contribution margin from question 1 or Average Revenue – Variable Cost per Unit = = $20.94 - $2.54 = $18.4

Loss: 80 – 72 = 8 rooms x 34 weekend nights x $18.4 = $5,005 Profit: 72 rooms x 34 weekend nights x $5 increase in rates = $12,240 Difference = $12,240 - $5,005 = $7,235 (number if positive; therefore, we have a profit and we should add it to profit before taxes) Therefore, revised profit before taxed would be equal to $22,390 + $7,235 = $29,625 Question 3.

Contribution Margin = Average Revenue – Variable Cost per Unit According to the case, the plans were to reduce the rates for the off-season to $10 and $15 for single and double occupancy respectively. Therefore, the average price per room during off-season would be ($10 + $15)/2 = $14 Variable cost per unit from question 1 equals to $2.54 per occupied room/day Therefore, Contribution Margin = $14 - $2.54 = $11.46 per occupied room/day Question 4.

First of all, I need to calculate the general expenses of running the hotel during off-season. This would simplify the calculations for alternatives. The general expenses for the off-season are as follows: Additional...

Please join StudyMode to read the full document