Advanced: Profit-maximizing pricing decision based on demand/price relationships. The Mcintyre Resort (MR), which is privately owned, is a world-famous luxury hotel and golf complex.

It has been chosen as the venue to stage ‘The Robyn Cup’, a golf tournament which is contested by teams of golfers from across the globe, which is scheduled to take place during July 2009.

MR will offer accommodation for each of the five nights on which guests would require accommodation.

The following information is available regarding the period of the tournament

2 Accommodation for guests is provided on an all-inclusive basis (meals, drinks, entertainment etc.).
3 The objective of the hotel management is to maximize profit.
4 The hotel management expect all single and family rooms to be ‘sold out’ for each of the five nights of the tournament. However, they are unsure whether the fee in respect of double rooms should be increased or decreased. At a price of $400 per room per night they expect an occupancy rate of 80 per cent of available double rooms. For each $10 increase/decrease they expect the number of rooms to decrease/increase by 40.
Required:

(a) (i) Calculate the profit-maximizing fee per double room that MR should charge per night during the tournament:
(6 marks)
(ii) Calculate how much profit would be earned from staging the tournament as a consequence of charging that fee. (4 marks)

(b) The management of the hotel is concerned by the level of variable costs per guest night to be incurred in respect of the tournament, A recent review of proposed operational activities has concluded that variable cost per guest per night in all rooms in the hotel would be reduced by 20 per cent if proposed changes in operational activities were made.
However, this would result in additional attributable fixed costs amounting to $200000 in respect of the five-day period.
Required:
Advise management whether, on purely financial grounds, it should make the proposed changes in operational activities. (6 marks)

(c) Discuss TWO initiatives that management might consider in order to further improve the profit from staging the golf tournament. (4 marks)
ACCA P5 Performance Management

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1 Hotel data: Total rooms Room mix: Double rooms 2400 75% Single rooms 15% Family rooms 10% Fee per room per night ($): Double rooms 400 Single rooms 300 Family rooms 600 Number of guests per room: Double rooms 2 Single rooms 1 4 Family rooms When occupied, all rooms will contain the number of guests as above. Costs: Variable cost per guest per night Attributable fixed costs for the five-day period: Double rooms Single and family rooms (total) $100 $516000 $300000