The Sherriton Hotels chain embarked on a new customer loyalty program in 2013. The 2013 year-end data
Question:
The average full price for one nights stay is $200. The chain incurs variable costs of $65 per night, exclusive of loyalty program costs. Total fixed costs for the chain are $140,580,000. Sherriton operates ten hotels with, on average, 500 rooms each. All hotels are open for business 365 days a year, and approximate average occupancy rates are around 80%. Following are some loyalty program characteristics:
An average Gold Customer would have received the 10% discount for his or her first 20 stays, received the 20% discount for the next 30 stays, and the 30% discount only for the last ten nights. Assume that all program members signed on to the program the first time they stayed with one of the chains hotels. Also, assume the restaurants are managed by a 100%-owned subsidiary of Sherriton.
REQUIRED
1. Calculate the program contribution margin for each of the three programs, as well as for the group of customers not subscribing to the loyalty program. Which program is the most profitable? Which is the least profitable? Do not allocate fixed costs to individual rooms or specific loyalty programs.
2. Develop an income statement for Sherriton for the year ended December 31, 2013.
3. What is the average room rate per night? What are average variable costs per night inclusive of the loyalty program?
4. Explain what drives the profitability (or lack thereof) of the most and least profitable loyalty programs (again, one of these may be the no program option).
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ