A local government authority owns and operates a leisure centre with numerous sporting facilities, residential accommodation, a cafeteria and a sports shop. The summer season lasts for 20 weeks including a peak period of six weeks corresponding to the school holidays. The following budgets have been prepared for the next summer season:
Accommodation
60 single rooms let on a daily basis. 35 double rooms let on a daily basis at 160 per cent of the single room rate.
Fixed costs £29 900.
Variable costs £4 per single room per day and £6.40 per double room per day.
Sports Centre
Residential guests each pay £2 per day and casual visitors £3
per day for the use of facilities.
Fixed costs £15 500
Sports Shop
Estimated contribution £1 per person per day.
Fixed costs £8250
Cafeteria
Estimated contribution £1.50 per person per day.
Fixed costs £12 750
During the summer season the centre is open seven days a
week and the following activity levels are anticipated:
Double rooms fully booked for the whole season.
Single rooms fully booked for the peak period but at only 80 per cent of capacity during the rest of the season. 30 casual visitors per day on average.
You are required to:
(a) Calculate the charges for single and double rooms assuming that the authority wishes to make a £10 000 profit on accommodation;
(b) Calculate the anticipated total profit for the leisure centre as a whole for the season;
(c) Advise the authority whether an offer of £250 000 from a private leisure company to operate the centre for five years is worthwhile, assuming that the authority uses a 10 per cent cost of capital and operations continue as outlined above.