Question

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 22 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 80 percent, based on a 365-day year. The average room rate was $215 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	$	138,150,000
Food & beverage		26,980,800
Miscellaneous		14,454,000
Total revenues	$	179,584,800
Costs
Labor	$	57,376,000
Food & beverage		23,126,400
Miscellaneous		16,381,200
Management		2,518,000
Utilities, etc.		44,000,000
Depreciation		11,000,000
Marketing		15,400,000
Other costs		5,000,000
Total costs	$	174,801,600
Operating profit	$	4,783,200

In year 1, the average fixed labor cost was $418,000 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 two new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 80 percent. Management has made the following additional assumptions for year 2:

The average room rate will increase by 5 percent.

Food and beverage revenues per night are expected to decline by 20 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 25 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 8 percent, and marketing costs will increase by 10 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

		Year 1	Year 2
1	No. of Property	22	24
2	No. of Room / Property	150	150
3	Total Room (1 x 2)	3,300	3,600
4	Total Nights	365	365
5	Total Room Nights (3 x 4)	12,04,500	13,14,000
6	Occupancy	80.00%	80.00%
7	Occupied Nights (5 x 6)	9,63,600	10,51,200

Labour Cost	Amount
Total Cost for Year 1	5,73,76,000
Fixed Cost Per Property	4,18,000
No. of Property	22
Total Fixed Cost	91,96,000
Total Variable Cost	4,81,80,000
Total room Nights	9,63,600
Variable Cost / Night	50

HomeSuites
Operating Income
Particular	Year 1	Calculation	Budgeted Year 2
Sales revenue
Lodging	13,81,50,000	(215 + 105%) x 1,051,200	23,73,08,400
Food & beverage	2,69,80,800	(26,980,800 / 963,600) x 80% x 1,051,200	2,35,46,880
Miscellaneous	1,44,54,000	(14,454,000 / 963,600) x 1,051,200	1,57,68,000
Total revenues	17,95,84,800		27,66,23,280
Costs
Labor - Fixed	5,73,76,000	418,000 / property	1,00,32,000
Labor - Variable		50 x 1,051,200	5,25,60,000
Food & beverage	2,31,26,400	(23,126,400 / 963,600) x 1,051,200	2,52,28,800
Miscellaneous	1,63,81,200	(16,381,200 / 963,600) x 125% x 1,051,200	2,23,38,000
Management	25,18,000	2,518,000 x 108%	27,19,440
Utilities, etc.	4,40,00,000	(44,000,000) / 22 x 24	4,80,00,000
Depreciation	1,10,00,000	(11,000,000) / 22 x 24	1,20,00,000
Marketing	1,54,00,000	15,400,000 x 110%	1,69,40,000
Other costs	50,00,000	NO CHANGE	50,00,000
Total costs	17,48,01,600		19,48,18,240
Operating profit	47,83,200		8,18,05,040