ACC 242 - Group Project #2

Antonbach Ski Lodge is an old, but well-maintained resort hotel in a mid-size mountain village in Colorado.It has no restaurant or bar but does have a fitness center, a pool and a hot tub.It is positioned as a mid-price, good quality "destination" property. Antonbach is only open during the 120 days of skiing season -- opening on December 2 and closing the last day of March.Antonbach has a total of 80 rooms with 50 rooms in the east wing and 30 rooms in the west wing.Thus, with 120 days of available rentals, the capacity for the resort is 9,600 "room rentals" per year (120 days per year times 80 rooms).

Each of the 50 rooms in the east wing rents for $150.The 30 rooms in the west wing of the hotel rent for $200 per day as they all have spectacular views of the ski slopes, the mountains, and the village. The average occupancy rate during the season is about 80% (typically, the hotel is full on weekends; during the week, an average of 32 or 33 east wing rooms and 23 west wing rooms are rented out each evening).

For the year ended March 31, 2018 (the last fiscal year), 7,488 total room rentals were sold throughout the season.Of these, 4,500 were east wing room rentals (75% occupancy) and 2,988 were west wing room rentals (83% occupancy).

Operating results for the year ended March 31, 2018 are shown in Exhibit 1.The manager's salary, shown in Exhibit 1, is paid over 12 months.Braden Nielson, the manager of the hotel, acts as a caretaker of the facilities during the off-season and also contracts most of the repair and maintenance work during that time.The manager has one assistant, Lucas Lowe, who only works the 120 days that the resort is open.The assistant earns$40,000.

The other employees are hourly employees and they only work during the 120 days that the hotel is open. The hotel has two supervisors who supervise the maids, help with check-in, and act as a concierge for the hotel.Each supervisor works a 10 hour day, working three days one week and four days the other week.Supervisors earn $12 per hour.Thus, total supervisor salaries are$12 per hour X 10 hours / day X 120 days / year or $14,400.

Desk clerks staff the front desk performing duties such as checking in guests, answering phones, taking reservations, responding to guest requests, etc.During the two day shifts (7am to 3pm and 3pm to 11pm) there are always two desk clerks on hand; however, only one desk clerk is needed during the evening shift (11pm to 7am).Desk Clerks earn $10 per hour.Thus, total desk clerk salaries are$10 per hour X 8 hour shifts X 5 clerks throughout the day X 120 days per year or $48,000.

Maids can clean an average of about 20-22 rooms per day; additionally, the maids clean the common areas (lounge, fitness center, pool and hot tub). Maids earn $8 per hour.There are always four maids working during the day times8 hours per day X $8 per hour X 120 days per year or $30,720.

If the hotel is open, then the resort must incur all of these labor costs.That is,if the hotel is open for a day, regardless of the number of guests, there will be a supervisor working 10 hours, 24 hours of desk clerk support and four maids scheduled.This is because the hotel is uncertain of how many rooms will end up being rented out each night. During weeknights, when there are fewer guests, maids do deeper cleanings of various areas of the hotel and of the empty hotel rooms.About $75,000 of the repairs and maintenance is for the general facilityand just having it open to guests; theremainder of repairs and maintenance is due to general wear and tearon the rooms from having guests in the rooms (e.g. repairs to the bathrooms, new mattresses, etc).

The resortpays payroll taxes and assorted fringe benefits that total 35% of labor costs.Approximately $5,000 of cleaning and supplies relate to the general facilities; the remainder of cleaning and supplies are variable based on the number of rooms rented.

The hotel provides guest amenities such as free newspapers, a complimentary breakfast in the lounge, nightly hot drinks (hot chocolate, coffee, tea) and cookies in the lounge.Guest amenitiesare related to the number of rooms rented.Technology and Telecommunications costs relate to having internet connections, phone and Cable TV.These costs are annual costs as they are incurred even when the resort is not open to guests.

Approximately$52,000 of the utilities costs are fixed costsas the resort needs to be heated and air conditioned regardless of whether it is open to guests.Refrigerators, outside lights, pool pumps, etc., still run regardless of whether there are guests.The remainder of utility costs will vary based on the number of rooms rented.Linen costs are costs related to towels and bedding.The hotel contracts with an outside firm who charges $2.72 for the towels and bedding associated with each room.There are additional fixed linen costs related to general hotel areas (e.g. linens in the lounge area).Office expenses are minor and are considered fixed costs.

Braden Nielson, the manager of the hotel, is concerned about the off-season months, which show losses each month and reduce the high profits reported during the season.In the off season, monthly revenue is zero but several costs continue throughout the year (e.g. Braden's salary, maintenance and repairs, technology and telecommunications, etc.). Braden has suggested to Jenny and Adam Brown, owners of Antonbach who acquired the ski lodge only last year, that to reduce the off-season losses, they should agree to keep the west wing of the hotel operating in the Summer and Fall months from June 4 through October 31 (150 days).Braden estimates the average occupancy rate of the west wing for the off-season would be between 30% and 40% for the next few years.Rates would have to be drastically reduced in the off-season.Present plans are to reduce them to $100 per room. Variable costs per room would not change in the Summer/Fall months. Since only the west wing would be open, the resort could operate with only two maids and one desk clerk for all shifts.An assistant would need to be hired for the 150 days and likely would need wages of $45,000. No supervisors would be needed as the assistant could cover those duties.Using the west wing wouldn't interfere with the repair and maintenance work but would likely cause an estimated additional $25,000 per year for repair and maintenance.

Requirements:

1.Determine how much of each cost is variable and/or fixed. Consider the number of days the resort is open to be fixed at 120 days. Calculate variable cost per room rented. Variable costs per room are identical for the east and west wing rooms. See Exhibit 2 for the format of the Exhibit you should create.

2.Calculate the Contribution Margin per product (east wing rooms and west wing rooms) and the weighted average Contribution Margin per room.

3.Assume that the owners do not extend the season of the hotel (there are 120 days of operations) and that the mix of room sales remains the same.The owners want to know what occupancy rates the resort needs for the east and west wing rooms to earn operating profit of $650,000. What are your thoughts/concerns about this plan?

4.Ignore the previous scenario.The resort's marketing firm has advocated investing in more marketing of the resort to improve occupancy rates.The marketing firm has suggested a $60,000 increase in marketing costs.They believe that this would increase occupancy by 500 rooms over the 120 day rental period (with a similar sales mix as currently achieved).What would be the financial impact of this plan? What are your thoughts about this plan (discuss your thoughts/concerns/suggestions/recommendations)?

5.Ignore the previous scenarios. Braden's assistant, Lucas, has suggested that they work with tour groups to do large private bookings in the east wing during the middle of the week.Room rates would be reduced for these large group bookings to $75 per room. The current season is 120 days or a little over 17 weeks (120 days / 7 days in a week = 17.14 weeks). Lucas believes that, for about 12 weeks during the season, they could get 2 bookings a week with an average of 15 rooms each time.The Variable Cost per room is not expected to change but the extra room usage may increase repairs and maintenance by about $5,000 a year (with bedding and linens wearing out a bit faster and more use of the common areas). Braden is against this plan as he feels that the price is too low.What would be the financial impact of this plan and what are your thoughts/concerns/suggestions about the plan?

6.Ignore the previous scenarios.Consider Braden's proposal to open the resort during the summer and fall months.What would be the financial results of this proposal?What else should be considered in regards to Braden's proposal?Discuss both quantitative and qualitative issues.

Jenny and Adam Brown, owners of Antonbach, have hired your accounting and consulting firm to help them analyze these issues. Write a report to the owners that addresses the above requirements.Your report should discuss the results of your analysis.

When preparing your report, you may assume the owners have a good working knowledge of accounting and alternative costing methods. Both owners used to work for an accounting firm.Discussions should be appropriate for that level of knowledge. You MAY work in the same group as for Group Project #1! You may also work in different groups.When asked about your concerns and suggestions, make sure you are considering BOTH quantitative AND qualitative issues.

Your results should have the following characteristics:

1.You must do all calculations in Excel. Excel is the business tool of choice worldwide. The sooner you learn it, and are able to use it well, the better you are prepared for internships and/or part-time jobs. You will be graded on format, layout, use of tabs, and how well you use Excel formulas and links from other cells and tabs. Both owners are well versed in Excel and will want to change numbers "on the fly" to test various "what if" scenarios. If you use any hard-coded numbers (numbers appearing in a formula out of thin air, with no ability for a reviewer to know where they come from) in your formulas the "what-if" scenario calculations will not work. There are more formula structures and capabilities in Excel than you will ever use. If you are not sure how to do something use the Help function or Google how to do it. Assume you will be showing the Excel model to the owners in their office whereby they may want some numbers changed as you show them your model to see how results would look. If none in your group have Excel you may download and install it for free, available for students.

2.Report should be between 2 and 4 pages, double-spaced (just make sure you completely answer the questions and support your answers with facts). It needs to be in a font no smaller than 11-point Arial and you must have 1-inch margins. You may refer in the memo to the various tabs and results in your Excel model. No exhibits to the memo are needed if you can refer to the Excel model and the owners can find easily the data you are referring to.

3.You should NOT just repeat a lot of the information in the exhibits and how you did the calculations. Instead, the majority of your memo should be about analysis (your concerns/suggestions/issues).For example, this means that you only need one or two sentences for Requirements 1 and 2 and these can be combined into one section in your memo.The discussion of Requirement 3 should have a sentence or two explaining what the owners want and what your calculations show.The focus of this section of your memo should be on your thoughts/concerns about the plan. The memo is meant to summarize what your Excel model shows, along with your findings and recommendations. This allow the owners to read it and be informed about your analysis, conclusions, and recommendations before actually looking at the Excel model.

4.NO Cover page; instead, in the "FROM" section of the memo, list all of your group members' names.

5.Your paper should look professional. In addition to being typewritten, this includes tone, spelling, grammar, etc. Please do a spell check.

6.Your paper is due on Thursday, April 11, at 11:59 pm.One Submission per group. No late papers will be accepted.

7.

EXHIBIT 1

Operating Statement for the year ended March 31, 2018

Revenues

$1,272,600

Operating Expenses

Salaries

Manager

$120,000

Assistant

$40,000

Supervisors (2)

$14,400

Desk Clerks (5)

$48,000

Maids (4)

$30,720

Payroll taxes & fringe benefits

$88,592

Depreciation

$156,922

Property Taxes

$28,880

Advertising Expenses

$50,000

Insurance

$18,042

Repairs and Maintenance

$78,553

Cleaning and Supplies

$24,940

Guest Amenities

$55,987

Technology and Telecommunications

$19,832

Utilities

$68,126

Linen Service

$20,890

Office Expenses

$7,938

Operating Profit

$400,778

EXHIBIT 2

Classification of Variable versus Fixed Costs

VARIABLE

FIXED

TOTAL

Operating Expenses

Salaries

Manager

$ 120,000

Assistant

40,000

Supervisors (2)

14,400

Desk Clerks (5)

48,000

Maids (4)

30,720

Payroll taxes & fringe benefits

88,592

Depreciation

156,922

Property Taxes

28,880

Advertising Expenses

50,000

Insurance

18,042

Repairs and Maintenance

78,553

Cleaning and Supplies

24,940

Guest Amenities

55,987

Technology and Telecommunications

19,832

Utilities

68,126

Linen Service

20,890

Office Expenses

7,938

TOTAL OPERATING EXPENSES

$ 871,822

Number of Rooms Rented

7,488

Operating Expense per Room Rented

$116.43