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In: Accounting

P6.12 The Inviting Inn has 500 available guest rooms. For a certain week next month, the...

P6.12 The Inviting Inn has 500 available guest rooms. For a certain week next month, the anticipated transient demand for rooms is as follows.

Monday 200

Tuesday 200

Wednesday 200

Thursday 200

Friday 100

Saturday 50

Sunday 50

The Inviting Inn also has committed the following number of rooms for group sales during the same week:

Monday 200

Tuesday 200

Wednesday 300

Thursday 300

Friday 100

Saturday 100

Sunday 100

The Inn has the possibility of booking another of 100 rooms for the night of Tuesday, Wednesday,Thursday and Friday of that week at a discounted rate of $60 per room. The inn's rack rate for transient guests is $80, and it marginal cost per room sold is $15.

a. Assuming the new group is booked, calculate the additional net sales revenue gross sales revenue less marginal costs, to the inn.

b. What factors, other than net sales revenue, might you consider before committing to this new group sale.

Solutions

Expert Solution

Calculation of days wise occupancy of the Inviting Inn and Vacant Rooms

Days Total Number of Rooms (A)

Rooms Committed for Group Sales (B)

 Rooms for Transient demand (C) Remaining Rooms (A-(B+C))
Monday 500 200 200 100
Tuesday 500 200 200 100
Wednesday 500 300 200 0
Thursday 500 300 200 0
Friday 500 100 100 300
Saturday 500 100 50 350
Sunday 500 100 50 350

According to question, Inn has a possibility to book 100 rooms for Tuesday, Wednesday, Thursday and Friday at the discounted rate of $60.

This Option gives Additional Revenue for 100 Rooms on Two Days i.e Tuesday and Friday but, for Wednesday and Thursday, it has to foregone revenue for 100 rooms form transient demand of $ 80/- per room. So there will be an extra loss of $ 20/- per room.

1.) If New group order booked -

Additional Gross Revenue Booked = 100 rooms * 2 days * $ 60= $ 12,000

Marginal Cost Per Room = $15 + $ 20 (Foregone)

= $35 *100 rooms * 2 days = $ (7, 000)

So Additional Net Sales Revenue= $ 5,000/-

2.)The Other Factors that should be considered other than Additional Net sales revenue:

a.) Effect of Foregone of Transient demand on Inn's goodwill.

b) Future Impact of foregoing Transient demand (if any negative).

ekkarill92 answered 2 years ago
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