ACCT 308 - Budget assignment (7) Home Suites is a chain of all-suite, extended-stay hotel properties. The chain has 17 properties with an average of 200 rooms in each property. In year 1, the occupancy rate the number of rooms filled divided by the number of rooms available) was 80%, based on a 365-day year. The average room rate was $210 for a night. The basic unit of operation is the "night", which is one room occupied for one night The operating Income for year 1 is as follows: HOMESUITES Operating Income Yoar 1 Sales Revenue Lodging Food & beverage Miscellaneous Total revenues $ 208,488,000 29,784,000 11,913,600 250,185,600 Costs Labor Food & Beverage Miscellaneous Management Utilities, etc Depreciation Marketing Other costs Total costs $ 62,617,800 19,856,000 13,899,200 2,513,000 37,400,000 11,050,000 19,100,000 8.013,000 174,449,000 Operating profit $ 75,736,600 In year 1, the average fixed labor cost was 5413,000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing and other costs) are fixed for the firm At the beginning of year 2, HomeSuites will open five new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 80%.. Management has made the following additional assumptions for year 2 The average room rate will increase by 896 Food and beverage revenues per night are expected to decline by 15% with no change in cost. . The average room rate will increase by 8%. Food and beverage revenues per night are expected to decline by 15% with no change in cost. The labor cost (both the fixed per property and variable portion) is not expected to change. The miscellaneous cost for the room is expected to increase by 20%, with no change in the miscellaneous revenues per room. Utilities and depreciation costs (per property) are forecast to remain unchanged. Management costs will increase by 6%, and marketing costs will increase by 8%. Other costs are not expected to change. . . Required-1: Using Excel (data provided in an Excel file), prepare a budgeted income statement for year 2. Hint: It will be useful to first calculate all the Year 1 rates/room (for revenues and costs...). Required-2: Using your analysis to prepare the budgeted income statement for year 2, prepare two additional income statements (also in Excel) under the following two scenarios: 1) Strategy 1: "High Price" management will work to maintain an average price of $273 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60% with this strategy. 2) Strategy 2: "High Occupancy" - management will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $204, they can achieve an occupancy rate of 80%. All other estimates for year 2 remain the same as before. Required-3: Once you have completed your 3 budget scenarios, make a recommendation to management (original plans, high price, high occupancy....what makes the most sense and why)
