A hotel group prepares financial statements on a quarterly basis. The senior management is reviewing the performance of one hotel and making plans for next year.

The managers have in front of them the results for this year (based on some actual results and some forecasts to the end of this year):

Quarter Sales revenue Profit/(loss)

£000 £000 1 400 (280)

2 1,200 360 3 1,600 680 4 800 40 Total 4,000 800 The total estimated number of guests (guest nights) for this year is 50,000, with each guest night being charged at the same rate. The results follow a regular pattern; there are no unexpected cost fluctuations beyond the seasonal trading pattern shown above.

For next year, management anticipates an increase in unit variable cost of 10 per cent and a profit target for the hotel of £1 million. These will be incorporated into its plans.

Required:

(a) Calculate the total variable and total fixed cost of the hotel for this year. Show the provisional annual results for this year in total, showing variable and fixed cost separately. Show also the revenue and cost per guest.

(b) i I f there is no increase in guests for next year, what will be the required revenue rate per hotel guest to meet the profit target?

ii I f the required revenue rate per guest is not raised above this year’s level, how many guests will be required to meet the profit target?

(c) O utline and briefly discuss the assumptions that are made in typical PV or break-even analysis, and assess whether they limit its usefulness.

CHAPTER 9 Cost–volume–358 profit analysis AppendixLO1