Question

In: Accounting

Glitz hotel, a 500-room hotel, rents hotel rooms for $120/night. At the current sales level of...

Glitz hotel, a 500-room hotel, rents hotel rooms for $120/night. At the current sales level of 400 rooms per night, Glitz currently makes a profit of $30/room:

Per room

Sales $120

Costs 90

Profit 30

It costs Glitz $90/night to maintain a room ($60 in depreciation, $25 in variable maintenance and $5 in fixed booking costs). Glitz has been approached by Conventions2000.com to purchase a block of 300 rooms for $80/room per night. If this special order is accepted, Conventions2000.com would take care of all booking costs for the rooms booked through Conventions2000.com.

Required:

Which are the relevant costs?
What is the net change in net income if Glitz accepts the special offer from Conventions2000.com?
What other issues should Glitz consider before accepting this special offer?

Expert Solution

1 )

If the special offer accepted the following are the relevant cost

B) answer

net change = before - after change in the profit

3)

Glitz should consider the other issues like the special order includes the maintenance charges then the glitz should earn more profit.

And it can reduce the depreciation cost.

If possible it can increase the selling price per room in the special order. $ 90 from $80

ekkarill92 answered 2 years ago

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