Mercury Hotel, a large hotel complex that operates a divisionalised management structure, is located in South East Queensland, Australia. the director of accommodation has been called into the marketing director’s office. e marketing director tells the director of accommodation that he has just been approaed by a Japanese tour operator who is looking to book accommodation in a South East queensland hotel for 800 guests. All guests would stay in double rooms for one of four consecutive weeks (200 guests per week booked into 100 rooms). e four-week period falls within the hotel’s quiet season. Consistent with its competitors, the hotel has never sold more than 40 per cent of its 300 double rooms at this time of the year.

Mercury’s accounting department has estimated that the full cost per double room sold per week is $300 and that the variable cost is $180. A recent analysis of past behaviour of Japanese guests indicates that in the course of a one week stay, each guest will purase, on average, 2 dinners and 3 breakfasts at one of the hotel’s restaurants. Average contribution per dinner cover is $25. Average contribution per breakfast served is $7.

e marketing director has informed the director of accommodation that the Japanese tour operator knows the queensland hotel market well and the fact that it is the quiet season. He also believes that the tour operator will be seeking quotes from other hotels to secure a low price.

Required:

a) As the director of accommodation concerned with maximising reported profit for your department, what is the lowest conceivable weekly rate you would be willing to quote for a double room in the off season?

b) the marketing director has been charged with the responsibility of maximising profit of the entire hotel. What is the lowest price the marketing director should be willing to accept, for a double room booked during an off-season week by a “typical Japanese guest”?

c) How could the accounting system be modified in order to motivate the director of accommodation to act in a manner consistent with the maximisation of total hotel profit and not just his own department’s profit?