Question

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 1 year ago
Next > < Previous

Related Solutions

The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $52 a night. Operating costs are as follows. Salaries $5,250 per month Utilities 2,100 per month Depreciation 1,500 per month Maintenance 900 per month Maid service 7 per room Other costs 32 per room. Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars. If the inn plans on renting an average of 50 rooms...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $ 60 a night. Operating costs are as follows. Salaries $ 11,800 per month Utilities 2,100 per month Depreciation 1,500 per month Maintenance 800 per month Maid service 8 per room Other costs 34 per room Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars. 1. Break-even point in rooms 2. Break-even point $...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $56 a night. Operating costs are as follows. Salaries $11,950 per month Utilities 2,100 per month Depreciation 1,400 per month Maintenance 750 per month Maid service 7 per room Other costs 31 per room Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars. 1. Break-even point in rooms 2. Break-even point $ If the...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that...
The Soma Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $60 a night. Operating costs are as follows. Salaries $9,700 per month Utilities 2,700 per month Depreciation 1,300 per month Maintenance 700 per month Maid service 8 per room Other costs 34 per room New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is incorrect. Determine the inn’s break-even point in (1) number...
The Hotel El Politécnico has # 500 rooms. They usually have a cost per room of...
The Hotel El Politécnico has # 500 rooms. They usually have a cost per room of $ 70.00, plus a fixed cost of $ 5,000.00 per day. Each room is rented for $ 175.00 per day during the summer season. Answer the following questions using the above data: a) If the Hotel operates at 70% capacity for one day, what is the net profit (gain / loss)? b) What is the equilibrium point (B. E. P.)? in units, if it...
A motel has 30 rooms and expects 70% occupancy next year. • The owners’ investment is...
A motel has 30 rooms and expects 70% occupancy next year. • The owners’ investment is 520,000, and they expect a 12% after tax return on their investment.(Net Income) • The income tax rate is 24%. • The motel has two mortgages: the first in the amount of $259,000 at a 10% interest rate and the second of $240,000 at a 14% interest rate. • Present value of the building is $432,000 and the depreciation rate is 5%. • The...
You receive $500 today and every month for the next 20 years. You will receive this...
You receive $500 today and every month for the next 20 years. You will receive this payment at the beginning of the month. Assume you can earn 5% on this annuity. How much is it worth?
You have an outstanding student loan with required payments of $500 per month for the next...
You have an outstanding student loan with required payments of $500 per month for the next four years. The interest rate on the loan is 8% APR. You are considering making an extra payment of $200 today (that is, you will pay an extra $200 that you are not required to pay). If you are required to continue to make payments of $500 per month until the loan is paid off, what is the amount of your final payment? What...
Workco must have the following number of workers available during the next three months: month 1,...
Workco must have the following number of workers available during the next three months: month 1, 20; month 2, 16; month 3, 25. At the beginning of month 1, Workco has no workers. It costs Workco $100 to hire a worker and $50 to fire a worker. Each worker is paid a salary of $140/month. Formulate the problem of determining a hiring and firing strategy that minimizes the total cost incurred during the next three months as a MCNF problem.
Last week, Onboard Co. has announced that the next two annual dividends will be in the...
Last week, Onboard Co. has announced that the next two annual dividends will be in the amount of $2.13 and $3.74, respectively. After that, the dividends will increase by 2.01 percent annually. The required return on this stock is 11.38 percent. What is the current price per share? (Hint: draw this out on a timeline.)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT