Snow Geese Inn

Snow Geese Inn

Phil and Carol’s bed and breakfast, the Snow Geese Inn is not financially sound. Last year, Phil and Carol only managed to earn thirty thousand dollars in revenue. Since the average price per room is eight-five dollars per night, it can be estimated that Phil and Carol had approximately three-hundred-and-fifty-two room reservations last year assuming that each room reservation is for one night. Last year’s total expenses were $31,058; exceeding the inn’s revenue of $30,000. At the end of last fiscal year, the Snow Geese Inn had a net loss of $1,058. The Inn needed an additional fourteen room reservations to break even at a total of three-hundred-and-sixty-five room reservations. If the Snow Geese Inn had each of its six rooms reserved during the entire year, it could potentially earn a maximum profit of $135,718.90. (See Exhibit 1)

At the beginning of this fiscal year, Phil and Carol decided to hire Maggie to help operate the Snow Geese Inn. After including Maggie’s base salary into the inn’s total expenses, the Snow Geese Inn would have to have four-hundred-and-sixty-six room reservations this year in order to break even. (See Exhibit 2) It is unlikely that the Snow Geese Inn will be able to make this thirty-two percent increase in its number of room reservations. Because this break-even point is unrealistic, Carol and Phil should expect to suffer an even greater net loss than the previous year. The potential profits of the Snow Geese Inn will also diminish since Maggie will receive a commission of thirty-five percent of revenues over $25,000. Even with the previous year’s revenue of $30,000, the Inn still suffered a substantial net loss without Maggie’s commission. In an effort to decrease costs, Phil and Carol should go back to operating the Snow Geese Inn themselves and increase the average price of a room per night.

Exhibit 1

$30,000 = 352 room reservations

$85

3729 = $10.59 (variable cost per room reservation)...