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Presentation/PPT
27/08/2022
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 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
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