A hotel group prepares accounts on a quarterly basis. The senior management is reviewing the performance of one hotel and making plans for 19X5.

They have in front of them the results for 19X4 (based on some actual results and some forecasts to the end of 19X4).

The total estimated number of visitors (guest nights) for 19X4 is 50,000. The results follow a regular pattern, there are no unexpected cost fluctuations beyond the seasonal trading pattern exhibited. The management intend to incorporate into their plans for 19X5 an anticipated increase in unit variable costs of 10 per cent and a profit target for the hotel of £lm.

(a) Determine the total variable and total fixed costs of the hotel for 19X4, by the use of a PV chart or by calculation.
Tabulate the provisional annual results for 19X4 in total, showing variable and fixed costs separately. Show also the revenue and costs per visitor.

(b) (i) If there is no increase in visitors for 19X5, what will be the required revenue rate per hotel visitor to meet the profit target?
(ii) If the required revenue rate per visitor is not raised above 19X4 level, how many visitors are required to meet the profit target?

(c) Outline and briefly discuss the assumptions that are contained within the accountants’ typical PV or break-even analysis and assess whether they limit its usefulness.

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4 Quarter I 2 234 3 400,000 Sales Profit/(loss) (280,000) 1,200,000 360,000 1,600,000 680,000 800,000 40,000 Total 4,000,000 800,000