Question

Glitz hotel is going to make a $2,000,000 investment by completing renovating a floor of the hotel. The floorplan will be entirely redone, and they can have a mix of three types of rooms: Luxury Suites, Large rooms, or Regular rooms. Due the size of the floor, they can build a maximum of 20 luxury suites or a maximum of 40 large rooms or a maximum of 60 regular rooms or a mix of all three.

Luxury suites will rent for $400 per night.

Lrrge rooms will rent for $200 per night.

Regular rooms will rent for $135 per night.

The cost to maintain each room, excluding depreciation, is $30/night ($25 in variable maintenance and $5 in fixed booking costs).

The food and beverage manager noted that since the suites are often used for conventions as private hospitality suites, they purchase an average of $200 per night in room service. Large rooms purchase an average of $40 and Regular $10 per night for room service. Room service generates a 70% gross profit. The cleaning manager noted that the suites generally require an extra $10/night in cleaning costs due to these conventions.

Estimated maximum demand per night is as follows:

Suites:10 rooms

Large: 25 rooms

Regular: no maximum demand

How many of each room should they build as part of the renovation?

Answer 1

This will increase the Contribution as well