# Skyview Manor Case Study

Topics: Variable cost, Costs, Fixed cost Pages: 2 (709 words) Published: April 21, 2015

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...