Question

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 20 properties with an average of 150 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 $220 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	$	138,040,000
Food & beverage		22,995,000
Miscellaneous		11,497,500
Total revenues	$	172,532,500
Costs
Labor	$	57,415,000
Food & beverage		17,246,250
Miscellaneous		13,140,000
Management		2,507,000
Utilities, etc.		40,000,000
Depreciation		10,000,000
Marketing		10,100,000
Other costs		2,800,000
Total costs	$	153,208,250
Operating profit	$	19,324,250

In year 1, the average fixed labor cost was $407,000 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 four 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

Total Propreties in Y1 20

Av. No of rooms 150 per property

Days i year 365 Days

Occupency Rate 75%

Av. Room Rate $220 per room per night

So, No of rooms occupied in year 1 will be 3000 x365 x 75% = 821250 rooms night

Calculation for Year 1 from given data

1 Fixed Labour cost per property = 20 x 407000 = $8140000

2 Variable Labour Cost = (57415000 - 8140000) = 49275000 / 821250 = $60 per room per night

3 Food & Beverage cost = 17246250 / 821250 = $21 per room per night

4 Misc Cost = 13140000 / 821250 = $16 per room per night

5 Utilities Cost = 40000000 / 20 = $2000000 per property

6 Depreciation Cost = 10000000 / 20 = $500000 per property

7 Management Cost = $2507500 per firm

8 Marketing Cost = $10100000 per firm

9 Other Costs = $2800000 per firm

Total number of rooms per night available in year 2 with addition of 4 additional properties, the total rooms available for the year 2 will be

24 x 150 x 365 x 75% = 985500 room night

Calculation of revenues and cost for year 2

1 lodging Revenue = 220 x 1.08 = 237.6 = 238 per room pre night

= 238 x 985500 = $234549000

2 Food & beverage revenue

= 22995000 / 821250 = $28 = 28 x 85% = $23.8 = $24 per room per night

So (24 x 985500) = $ 23652000

3 Misc. Revenue

= 11497500 / 821250 = $14 per room per night, no change for year 2 so total Misc revenue for year 2 will be

(14 x 985500 ) = $13797000

4 Labour cost = fixed labour cost = 24 x 407000 = $9768000

Variable Labour cost = 60 x 985500 = 59130000

Total labour cost for year 2 = 9768000 + 59130000 = $68898000

5 Food & Bev. cost = 21 x 985500 = $20695500

6 Misc Cost = 16 x 1.02 = 19.2 = $19 per room per night

so 19 x 985500 = $18724500

7 Utility Cost = 24 x 2000000 = $48000000

8 Depreciation Cost = 24 x 500000 = $12000000

9 Management cost = 2507000 x 1.06 = $2657420

10 Marketing cost = 10100000 x 1.08 = $10908000

11 Other cost = No change = $2800000

Budget for year 2 wiil be as follows

Lodging 234549000

Food & Beverage 23652000

Misc Revenue 13797000

Total Revenue (B) 271998000

Labour Cost 68898000

Food & Bev 20695500

Misc 18724500

Management 2657420

Utilities 48000000

Depreciation 12000000

Marketing 10908000

Other Cost 2800000

Total Cost (A) 184683420

Budget operating profit (A-B) = $87314580

So the budgeted profit for year 2 will be $87314580