SkyViewManorCase

# SkyViewManorCase - cSkyview Manor Question 1 On average how...

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cSkyview Manor Question 1 – On average, how many rooms must be rented each night in season for the hotel to breakeven? Calculating the break-even occupancy level requires splitting the costs in Exhibit 1 into the fixed and variable components: a) Variable Costs: Cleaning supplies \$1,920 Linen service 13,920 ½ Misc expense 3,657 \$19,497 b) Per Occupied Room Night = \$19,497 ÷ \$7,680 (120 x 80 x 80%) = \$2.54 c) Contribution Margin: Average revenue 160,800 ÷ 7,680 = 20.94 Revenue – Variable Cost = 20.94 – 2.54 = 18.40 d) Fixed Costs: Total Costs – Variable Costs = Fixed Costs \$138,410 – 19,497 = \$118,913 e) Break Even = 118,913/18.40 = 6,463 Per night (÷ 120) = 54 rooms (68% occupancy) Question 2 – The hotel is full on weekends in the ski season. If all room rates were raised \$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? The easiest way to make the calculation is to calculate the change in Contribution Margin (CM) since fixed costs will not change. Lost CM 8 rooms x 34 weekend nights (120 x 2/7 – 34) x 18.40 = \$5,005 Added CM 72 rooms x 34 nights x \$5 = \$12,240 Net Change 12,240 – 5,005 = \$7,235 more profit (before tax) The break-even number for lost rooms per night is given by: X = Break-even lost rooms X · \$18.40 = (80 – X) · \$5 18.4X + 5X = 400 23.4X = 400 X = 17 The price increase is a good idea as long as we can rent at least 63 rooms per weekend night. 1

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Question 3 – What is the incremental contribution margin per occupied room/day during the off-season? 1. Cleaning Supplies Total Cost 1,920 Days occupied 7,680 (a) = 0.25 per room occupied (a) = 80 rooms x 0.8 occupancy rate x 120 days = 7,680 2. Linen Equivalent Days: Singles (2/10 x 1 x 7,680) = 1,536 Doubles (8/10 x 2 x 7,680 = 12,288 13,824 Total Linen Cost 13,920 = 1.01 per equivalent day 13,824 per single (20% occupancy) 2.02 per double (80% occupancy) 3. Misc. Expenses (room supplies) \$7,314 x ½ ÷ 7,680 = \$0.48 per occupied room 4. Revenues Single = \$10, Double = \$15 Contribution Margin Single 10.00 – (0.25 + 1.01 + 0.48) = \$10 - \$1.74 = \$8.26 Double 15.00 – (0.25 + 2.02 + 0.48) = \$15 - \$2.75 = \$12.25 Wtd. Avg = 8.26 (0.2) + 12.25 (0.8) = \$11.45 2
Question 4 – For each alternative list the annual expenses that are incremental to that decision alternative but are not related to the room/days occupied.

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SkyViewManorCase - cSkyview Manor Question 1 On average how...

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