Skyview Manor Case

7/28/13

Skyview Manor Case

1. On average, how many rooms must be rented each night in season for the hotel to break even?

Variable Costs:

Cleaning Supplies $1,920

Linen Service $13,920

½ Misc Expenses $3,657

$19,497 (Total Variable Cost)

Variable Cost per Occupied Room Night:

=$19,4977,680*120 days*80 rooms*0.80 occupancy rate

=$2.54.

Contribution Margin:

Average Revenue = $160,8007680 = $20.94

Contribution Margin = Revenue – Variable Cost = $20.94 – $2.54 = 18.40.

Fixed Costs:

= Total Costs – Variable Costs = $138,410 - $19,497 = $118,913.

Break Even:

=$118,913$18.40=6,463 room nights.

Per night:

=6,463120 = 54 rooms.

54 rooms on average (or 67.3% occupancy) must be rented each night in season for the hotel to break even.

2. The hotel is full on weekends in the ski season. If all room rates were raised to $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?

Subtracted Contribution Margin:

Weekend nights = 120 * 27 = 34

Subtracted CM = 8 rooms * 34 weekend nights * $18.40 = $5,005.

Added Contribution Margin:

= 72 rooms * 34 weekend nights * $5.00 = $12,240.

Net Change in Contribution Margin:

= $12,240 - $5,005 = $7,235 added profit before tax.

Revised Profit before tax:

= $22,390 + $7,235 = $29,625

3. What is the proposed incremental contribution margin per occupied room/day during the off-season?

Cleaning Supplies

= Total CostDays Occupied = 1,9207,680 = 0.25 per room occupied.

Linen Service

Equivalent Days:

Singles: (210 * 1 * 7,680) = 1,536.

Doubles: (810 * 2 * 7,680) = 12,288

13, 824

Total Linen Cost = 13,92013,824 = 1.01 per equivalent day per single room (20% occupancy)

2.02 per double room (80% occupancy)

Misc. Expenses (room supplies)

($7,314 * 0.5) / 7,680 = $0.48 per occupied room

Revenues

Single = $10, and Double = $15...