HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 12 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 75 percent, based on a 365-day year. The average room rate was $175 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:

In year 1, the average fixed labor cost was $401,000 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 four new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 75 percent. Management has made the following additional assumptions for year 2:

• The average room rate will increase by 8 percent.
• Food and beverage revenues per night are expected to decline by 15 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 20 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 6 percent, and marketing costs will increase by 8 percent.
• Other costs are not expected to change.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $212 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 65.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $172, they can achieve an occupancy rate of 85 percent. The current estimated profit is $16,159,340.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

'Break even analysis

You own a 10 bedroom hotel

With the following prices:

$ 12,000 per month mortgage payment

   $ 4,000 per month for the gardener and housekeeper

   $   9.00 per room for soap, towels etc.

   $ 20.00 per room desired Net Profit

Assume a 30 day month

SOLVE FOR THE FOLLOWING:

1.   The selling price per room per night AND the monthly breakeven point.

2.   The monthly breakeven point if you raise the selling price calculated in question 1

       above by $12.00.

3. The monthly breakeven point if you lower the selling price calculated in question 1   

      above by $3.00.

4. Which of the 3 prices would you charge? What factors should you consider?

5. What would your selling price and breakeven point be if you want to pay

      yourself $50,000 per year?

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 20 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 70 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:

In year 1, the average fixed labor cost was $416,000 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 six new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70 percent. Management has made the following additional assumptions for year 2:

• The average room rate will increase by 8 percent.
• Food and beverage revenues per night are expected to decline by 15 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 20 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 6 percent, and marketing costs will increase by 8 percent.
• Other costs are not expected to change.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $285 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $194, they can achieve an occupancy rate of 80 percent. The current estimated profit is $75,358,035.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

b. Prepare a budgeted income statement for year 2 if the “High Occupancy” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

c. Which is the correct pricing strategy for year 2.

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 20 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 70 percent, based on a 365-day year. The average room rate was $192 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:

In year 1, the average fixed labor cost was $406,000 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 five new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70 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.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $222 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $182, they can achieve an occupancy rate of 80 percent. The current estimated profit is $118,854,770.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $222 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $182, they can achieve an occupancy rate of 80 percent. The current estimated profit is $118,854,770.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $222 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $182, they can achieve an occupancy rate of 80 percent. The current estimated profit is $118,854,770.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

b. Prepare a budgeted income statement for year 2 if the “High Occupancy” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

c. Which is the correct pricing strategy for year 2.

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 24 properties with an average of 200 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 $220 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:

In year 1, the average fixed labor cost was $420,000 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 four 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 10 percent.
• Food and beverage revenues per night are expected to decline by 25 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 30 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 5 percent, and marketing costs will increase by 5 percent.
• Other costs are not expected to change.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (“High Price”), they will work to maintain an average price of $230 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 70.0 percent with this strategy. Under the alternative strategy (“High Occupancy”), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $190, they can achieve an occupancy rate of 90 percent. The current estimated profit is $259,025,200.

Required:

a. Prepare a budgeted income statement for year 2 if the “High Price” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

b. Prepare a budgeted income statement for year 2 if the “High Occupancy” strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

Case Study 1

Hotel worker Danny Ruiz was living with his wife and four children in a cramped New York apartment when he saw a television ad promising the family a way out. “Why rent when you can own your own home?” Penn- sylvania builder Gene Percudani asked. The company even offered to pay his rent for a year, while he saved for a down payment. So the Ruiz family fled the cityhe Pocono Mountains, where they bought a three- bedroom Cape Cod home for $171,000. However, when they tried to refinance less than two years later, the home was valued at just $125,000. “I just about flipped,” said Mr. Ruiz. Later Mrs. Ruiz remarked about her husband, “He went nuts.” Percudani, a 51-year-old native of Queens, New York, built a thriv- ing homebuilding business in this market, running folksy television ads offering New Yorkers new homes in Pennsylvania. If they joined Percudani’s program, called “Why Rent,” homeowners would find financing through another of his companies, Chapel Creek Mort- gage, which brokered loans from J. P. Morgan Chase and the company’s Chase Manhattan Mortgage unit. For years, the “Why Rent” program appealed to workers with modest salaries, such as Eberht Rios, a truck driver for UPS. Rios bought a home in the Poco- nos for $140,000. This year, when he tried to refinance, he was told the home was valued at only $100,000. One local appraiser, Dominick Stranieri, signed off on most of the “Why Rent” deals that state officials now say were overpriced, including the Rios and Ruiz homes. Percudani’s firm picked Stranieri as his appraiser because of his quick work and low fee of $250, instead of the typical $300 to $400. In exchange for a steady stream of work, Mr. Stranieri accepted without ques- tion valuations from Percudani’s company. Other common methods of creating revenues include investors and others buying distressed proper- ties and then, using inflated appraisals, selling them for a big profit. In order to secure the efforts of a “dirty appraiser,” those involved with the fraud would pay up to $1,500 under the table on top of the appraiser’s stan- dard fee of $400. Another unique twist to the plot is that few of the people involved in making mortgage loans have a long- term interest in them. Traditionally, bankers made loans directly and held them, giving the lenders a strong incentive to find fair appraisals to protect their interest. Today, however, many appraisers are picked by independent mortgage brokers, who are paid per transaction and have little stake in the long-term health of the loans. Many lenders have also lost a long-term interest in their loans, because they sell them off to investors. Appraisers increasingly fear that if they don’t go along with higher valuations sought by bro- kers, their business will dry up. Do you think a county appraiser would do a lot bet- ter than a private practitioner? Joel Marcus, a New York–based attorney recently had his property valued at $2.2 million by a county appraiser, up from $2 million the previous year, which means a $7,200 jump in his property tax bill. Based on recent home sales in his neighborhood, Marcus believes his property is valued at between $1.7 and $1.8 million. Based on this informa- tion, Marcus has appealed his appraisal. Although a good appraisal requires doing hours of legwork, visiting a property to check its condition, and coming up with at least three comparable sales, Percu- dani says he isn’t surprised that later appraisals, or even different appraisals made at the same time, could result in different values. “Appraisals are opinions,” he says. “Value, like beauty, is in the eye of the beholder.” Stra- nieri and Percudani deny any wrongdoing and say they operated independently and that any home that declined in value did so because of a weak economy. “It’s like buying a stock,” Percudani says in an inter- view. “The value goes up. The value goes down.” Questions

1. How is an opportunity created to commit appraisal fraud? Does the appraiser act alone, or is collusion routinely involved?

2. How is appraisal fraud detected? Is intent to deceive easy to prove in appraisal fraud?

3. What pressures or perceived pressures can motivate appraisers to make faulty valuations?

4. How do appraisers rationalize their fraudulent behavior?

5. Why would a county perceive pressure to fraudulently inflate property values?

6. What controls would help to prevent appraisal fraud?

7. What natural controls exist to prevent homeownersfrom the desire to “massage the value” of their homes? (Hint: Think about a homeowner’s motivation.)

Yankee Hotel Foxtrot initiated operations on July 1, 2014. To manage the company officers and managers have requested monthly financial statements starting July 31, 2014. The adjusted trial balance amounts at July 31 are shown below. Debits Credits Cash $ 7,680 Accumulated Depreciation- Equipment $ 840 Accounts Receivable 810 Notes Payable 6,000 Prepaid Rent 1,965 Accounts Payable 2,140 Supplies 1,160 Salaries and Wages Payable 360 Equipment 11,400 Interest Payable 40 Owner's Drawings 800 Unearned Service Revenue 580 Salaries and Wages Expense 7,145 Owner's Capital 10,640 Rent Expense 2,740 Service Revenue 14,390 Depreciation Expense 665 Supplies Expense 580 Interest Expense 45 Total debits $ 34990 Total Credits $34990 Instructions (A) Determine the net income for the month of July (B) Determine the amount for Owner’s, Capital at July 31, 2014 (C) Determine the Balance Sheet at July 31, 2014 for

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 21 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 75 percent, based on a 365-day year. The average room rate was $210 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 $ 138,060,000 Food & beverage 39,091,500 Miscellaneous 11,497,500 Total revenues $ 188,649,000 Costs Labor $ 79,873,500 Food & beverage 22,995,000 Miscellaneous 13,797,000 Management 2,509,000 Utilities, etc. 37,800,000 Depreciation 10,500,000 Marketing 16,500,000 Other costs 3,250,000 Total costs $ 187,224,500 Operating profit $ 1,424,500 In year 1, the average fixed labor cost was $409,000 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 four new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 75 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. The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy ("High Price"), they will work to maintain an average price of $261 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 65.0 percent with this strategy. Under the alternative strategy ("High Occupancy"), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $174, they can achieve an occupancy rate of 85 percent. The current estimated profit is $139,623,405. Required: a. Prepare the budgeted income statement for year 2 if the "High Price" strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.) Home Suites Operating Income Year 2 Sales Revenue Lodging Food & Bev. MISC Total Revenues Costs Labor Food & Bev. MISC Management Utilities, ECT Depreciation Marketing Other Costs Total Costs Operating Profit b. Prepare the budgeted income statement for year 2 if the "High Occupancy" strategy is adopted. Home Suites Operating Income Year 2 Sales Revenue Lodging Food & Bev. MISC Total Revenues Costs Labor Food & Bev. MISC Management Utilities, ECT Depreciation Marketing Other Costs Total Costs Operating Profit

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 15 properties with an average of 210 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 $190 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 $ 138,020,000 Food & beverage 29,433,600 Miscellaneous 10,117,800 Total revenues $ 177,571,400 Costs Labor $ 61,263,000 Food & beverage 18,396,000 Miscellaneous 11,957,400 Management 2,505,000 Utilities, etc. 36,000,000 Depreciation 13,500,000 Marketing 10,000,000 Other costs 2,500,000 Total costs $ 156,121,400 Operating profit $ 21,450,000

In year 1, the average fixed labor cost was $405,000 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 five 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 10 percent.

Food and beverage revenues per night are expected to decline by 25 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 30 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 5 percent, and marketing costs will increase by 5 percent.

Other costs are not expected to change.

Required:

Prepare the budgeted income statement for year 2. (Round your per unit average cost calculations to 2 decimal places.)

Home Suites

Operating Income

Year 2

Sales Revenue

Lodging

Food and Beverage

MISC

Total Revenues

Costs

Labor

Food and Beverage

MISC

Management

Utilities, ECT

Depreciation

Marketing

Other Costs

Total Costs

Operating Profit

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 21 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 75 percent, based on a 365-day year. The average room rate was $210 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 $ 138,060,000 Food & beverage 39,091,500 Miscellaneous 11,497,500 Total revenues $ 188,649,000 Costs Labor $ 79,873,500 Food & beverage 22,995,000 Miscellaneous 13,797,000 Management 2,509,000 Utilities, etc. 37,800,000 Depreciation 10,500,000 Marketing 16,500,000 Other costs 3,250,000 Total costs $ 187,224,500 Operating profit $ 1,424,500

In year 1, the average fixed labor cost was $409,000 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 four new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 75 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.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy ("High Price"), they will work to maintain an average price of $261 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 65.0 percent with this strategy. Under the alternative strategy ("High Occupancy"), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $174, they can achieve an occupancy rate of 85 percent. The current estimated profit is $139,623,405.

Required:

a. Prepare the budgeted income statement for year 2 if the "High Price" strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

Home Suites

Operating Income

Year 2

Sales Revenue

Lodging

Food & Bev.

MISC

Total Revenues

Costs

Labor

Food & Bev.

MISC

Management

Utilities, ECT

Depreciation

Marketing

Other Costs

Total Costs

Operating Profit

b. Prepare the budgeted income statement for year 2 if the "High Occupancy" strategy is adopted.

Home Suites

Operating Income

Year 2

Sales Revenue

Lodging

Food & Bev.

MISC

Total Revenues

Costs

Labor

Food & Bev.

MISC

Management

Utilities, ECT

Depreciation

Marketing

Other Costs

Total Costs

Operating Profit