Sparkling Spring Luxury Resorts has been evaluating how it might expand its sustainability efforts in its hotels. In any given month, an average of 109,500 room days are available in total (this total capacity fi gure is roughly estimated by taking the total number of hotel rooms in the hotels owned by Sparkling Spring and multiplying by 30 days per month). Management is currently targeting two areas for sustainability projects: Laundry and Housekeeping.
Laundry: Currently, in each hotel room, a small sign is placed beside the bed that informs the hotel guest that the environment will benefi t if the guest reuses the linens. The company has experienced some success with the signs; the cost of laundry has decreased slightly over the past several years that the program has been in place. Management is now considering the possibility of giving guests a $0.40 credit on their hotel bill for each day of the stay that the linens in the room are reused rather than laundered.
Housekeeping: Management is also evaluating the possibility of expanding sustainability efforts in housekeeping by providing an incentive of a $1.50 credit on the hotel bill for each day the guest opts to skip a daily room cleaning.
To evaluate these options, management has gathered data for the past year for its laundry costs and housekeeping costs. The costs and occupancy data include:

To satisfy investors, management only wants to implement programs which are cost effective; that is, the benefits of the program must exceed the costs of the program. Sustainability projects are expected to be cost effective.
Requirements
1. Using the high-low method, calculate the cost per guest of laundry per day. (The volume should be the number of room days, which you will have to calculate for each month.)
2. Using the high-low method, calculate the cost per guest of housekeeping per day. (Again, the volume should be the number of room days, which you would have calculated for Requirement 1.)
3. Using the high-low method, evaluate the proposal to give guests a $0.40 per day credit for reusing their room linens. Does it appear to be cost effective to offer this program?
4. Using the high-low method, evaluate the proposal to give guests a $1.50 per day credit for skipping housekeeping services. Does it appear to be cost effective to offer this program?
5. Using regression analysis, calculate the cost per guest of laundry per day. (Again, the volume should be the number of room days, which you would have calculated for Requirement 1.)
6. Using regression analysis, calculate the cost per guest of housekeeping per day. (Again, the volume should be the number of room days, which you would have calculated for Requirement 1.)
7. Using regression analysis, evaluate the proposal to give guests a $0.40 per day credit for skipping housekeeping services. Does it appear to be cost effective to offer this program?
8. Using regression analysis, evaluate the proposal to give guests a $1.50 per day credit for skipping housekeeping services. Does it appear to be cost effective to offer this program?
9. Regarding the two programs, what is your recommendation to management about which program(s) to implement? Provide rationale for your recommendation.

Transcribed Image Text:

Monthly Occupancy Percentage 83% 81% 72% 65% 55% 51% 59% 53% Total Housekeeping Total Laundry Costs Month January February Aii April May June July August September $41,470 $41,032 $36,814 S31,435 27,449 $26,943 $29,745 $26,739 $25,797 19,700 S150,051 S144,096 141,097 S127,202 $109,858 S 96,271 113,977 S 91,000 S 83,891 S 81,500 $111,099 $118,646 39% 55% 64% December $33,572