Question

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 12 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 75 percent, based on a 365-day year. The average room rate was $218 for a night. The basic unit of operation is the “night,” which is one room occupied for one night.

The operating income for year 1 is as follows.

HomeSuites
Operating Income
Year 1
Sales revenue
Lodging	$	143,226,000
Food & beverage		19,710,000
Miscellaneous		9,855,000
Total revenues	$	172,791,000
Costs
Labor	$	40,506,000
Food & beverage		15,111,000
Miscellaneous		11,169,000
Management		2,519,000
Utilities, etc.		24,000,000
Depreciation		6,000,000
Marketing		30,100,000
Other costs		8,019,000
Total costs	$	137,424,000
Operating profit	$	35,367,000

In year 1, the average fixed labor cost was $419,000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and other costs) are fixed for the firm.

At the beginning of year 2, HomeSuites will open three new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 75 percent. Management has made the following additional assumptions for year 2.

• The average room rate will increase by 8 percent.
• Food and beverage revenues per night are expected to decline by 15 percent with no change in the cost.
• The labor cost (both the fixed per property and variable portion) is not expected to change.
• The miscellaneous cost for the room is expected to increase by 20 percent, with no change in the miscellaneous revenues per room.
• Utilities and depreciation costs (per property) are forecast to remain unchanged.
• Management costs will increase by 6 percent, and marketing costs will increase by 8 percent.
• Other costs are not expected to change.

Required:

Prepare a budgeted income statement for year 2. (Round your per unit average cost calculations to 2 decimal places.)

Answer 1

Home Suites

Budgeted Income Statement (Operating Income)

Year 2

Sales revenue Lodging (A)	193,355,100
Food & beverage (B)	20,941,875
Miscellaneous (C)	12,318,750
Total revenues (D)	226,615,725
Costs
Labour (E)	48,990,000
Food & beverage (F)	18,888,750
Miscellaneous(G)	16,753,500
Management (H)	2,970,140
Utilities, etc (I)	30,000,000
Depreciation (J)	7,500,000
Marketing (K)	32,508,000
Other costs	8,019,000
Total Costs	165,629,390
Operating Profit	60,986,335

Working notes:

(A) Sales revenue Lodging:

Number of properties for year 2 =15(12+3 new)

Average number of rooms per property= 200

Number of Days = 365

Occupancy percentage = 75%

Number of Nights (unit of operation) = 821,250

Average room rate for a night (year 2) = 235.44(218+17.44)

Lodging Revenue = 821250235.44=193,355,100

(B) Food & beverage:

Total Food & Beverage revenue year 1 = 19,710,000

Number of night (year 1) = 657,000 (1220036575%)

Food & Beverage revenue per night (year 1) = 30

Food & Beverage revenue per night (year 2) = 25.5(30-4.5)

Total Food & Beverage revenue year 2 =25.5821250=20,941,875

(C) Miscellaneous:

Total miscellaneous year 1 = 9,855,000

Number of night (year 1) = 657,000 (1220036575%)

miscellaneous revenue per night (year 1) = 15

miscellaneous revenue per night (year 2) = 15

Total miscellaneous revenue year 2 =15821250=12,318,750

(E) Labour:

Total Labour Cost (year 1) = 40,50,6000

Fixed Labour Cost = 5,028,000(12419,000)

Variable Labour cost = 35,478,000

Number of Nights (year 1) =657,000

Variable Labour cost per night =54

Fixed Labour cost (year 2) =6,285,000 (41900015)

variable Labour cost (year 2) =42,705,000 (82125052)

Total Labour cost (year 2) =48,990,000

(F) Food & Beverage:

Total Food & Beverage year 1 = 15,111,000

Number of night (year 1) = 657,000 (1220036575%)

Food & Beverage cost per night (year 1) = 23

Food & Beverage cost per night (year 2) = 23

Total food & Beverage cost year 2 =23821250=18,888,750

(G) Miscellaneous:

Total miscellaneous year 1 = 11,169,000

Number of night (year 1) = 657,000 (1220036575%)

miscellaneous cost per night (year 1) = 17

miscellaneous cost per night (year 2) = 20.4(17+3.4)

Total miscellaneous cost year 2 =20.4821250=16,753,500

(H) Management:

Management Cost (Increase of 6% over year)=2,519,000+151,140=2,970,140

(I) Utilities, etc

Total Utilities Cost for year 1 =24,000,000

No of Properties in year 1 =12

Per properties cost of Utility = 2,000,000

No of Property in year 2 = 15

Total Utility cost of year 2 = 30,000,000

(J) Depreciation :

Total Depreciation Cost for year 1 =6,000,000

No of Properties in year 1 =12

Per properties cost of Depreciation = 5,00,000

No of Property in year 2 = 15

Total Depreciation cost of year 2 = 7,500,000

(K) Marketing:

Marketing cost (increase of 8% over year )= 30,100,000+24,08,000=32,508,000