Background Information Provided by Your Client: The Riverfront, a hotel in Savannah, Georgia. For the hotel, management expects occupancy rates to be 95% in December, January and February; 85% in November, March and April; and 70% the rest of the year. This hotel has 325 rooms and the room rental is $230.00 per night. Of this, on average 10% is received as a deposit the month before the stay, 60% is received in the month of the stay, and 28% is collected the month after. The remaining 2% is never collected. Most of the costs of running the hotel are fixed. The variable costs are only $30.00 per occupied room, per night. Fixed salaries (including benefits) run $400,000 per month, depreciation is $350,000 a month, other fixed costs are $125,000 per month, and interest expense is $500,000 per month. Variable costs and salaries are paid in the month they are incurred, depreciation is recorded at the end of each quarter, other fixed costs and salaries are paid in the month they are incurred, and interest is paid semi-annually each June and December. The client wants your accounting firm to prepare a traditional income statement (profit and loss statement) using the information above. 1. The client wants to know: How much would the hotel's annual profit increase if occupancy increased by 5 percentage points during the off-season (that is from 70% to 75%) in each month from May to October. 2. The client wants to know the contribution margin. 3. The client wants to know the break-even point for the hotel. Riverfront Hotel Income Statement January 1, 2020 - December 31, 2020 January February March April May June July August September October Novemebr December 2020 YTD 2,130,375.00 2,130,375.00 1,906,125.00 1,906,125.00 1,569,750.00 1,569,750.00 1,569,750.00 1,569,750.00 1,569,750.00 1,569,750.00 1,906,125.00 2,130,375.00 21,528,000.00 277,875.00 277,875.00 248,625.00 248,625.00 204,750.00 204,750.00 204,750.00 204,750.00 204,750.00 204,750.00 248,625.00 277,875.00 2,808,000.00 1,852,500.00 1,852,500.00 1,657,500.00 1,657,500.00 1,365,000.00 1,365,000.00 1,365,000.00 1,365,000.00 1,365,000.00 1,365,000.00 1,657,500.00 1,852,500.00 18,720,000.00 400,000.00 400,000.00 400,000.00 400,000.00 400,000.00 Revenue Variable expenses Contribution Margin Fixed expenses Salaries Depretiation Interest expense Other fixed cost Bad debts Total fixed expenses Net Income 400,000.00 1,050,000.00 400,000.00 1,050,000.00 125,000.00 125,000.00 125,000.00 125,000.00 42,607.50 42,607.50 38,122.50 38,122.50 567,607.50 567,607.50 1,613,122.50 563,122.50 1,284,892.50 1,284,892.50 44,377.50 1,094,377.50 400,000.00 400,000.00 1,050,000.00 300,000.00 125,000.00 125,000.00 31,395.00 31,395.00 556,395.00 1,906,395.00 808,605.00 (541,395.00) 125,000.00 31,395.00 556,395.00 808,605.00 125,000.00 125,000.00 31,395.00 31,395.00 556,395.00 1,606,395.00 808,605.00 (241,395.00) 400,000.00 400,000.00 400,000.00 1,050,000.00 300,000.00 125,000.00 125,000.00 125,000.00 31,395.00 38,122.50 42,607.50 556,395.00 563,122.50 1,917,607.50 808,605.00 1,094,377.50 (65,107.50) 4,800,000.00 4,200,000.00 600,000.00 1,500,000.00 430,560.00 11,530,560.00 7,189,440.00 Dec (Prior Year) Oct Apr 9.750.00 85% Total 117,000.00 Room Nights (325 rooms x 30 days) Occupancy Occupied Rooms Average Rate Revenue Jan 9,750.00 95% 9,262.50 230.00 2,130,375.00 Feb 9,750.00 95% 9,262.50 230.00 2,130,375.00 Mar 9,750.00 85% 8,287.50 230.00 1,906,125.00 May 9,750.00 70% 6,825.00 230.00 1,569,750.00 Jun 9,750.00 70% 6,825.00 230.00 1,569,750.00 Jul 9,750.00 70% 6,825.00 230.00 1,569,750.00 Aug 9,750.00 70% 6,825.00 230.00 1,569,750.00 Sep 9,750.00 70% 6,825.00 230.00 1,569,750.00 Nov 9,750.00 85% 8,287.50 230.00 1,906,125.00 9,750.00 70% 6,825.00 230.00 1,569,750.00 Dec 9,750.00 95% 9,262.50 8,287.50 230.00 1,906,125.00 230.00 2,130,375.00 93,600.00 2,760.00 21,528,000.00 Variable costs per room 277,875.00 277,875.00 248,625.00 248,625.00 204,750.00 204,750.00 204,750.00 204,750.00 204,750.00 204,750.00 248,625.00 277,875.00 2,808,000.00 Fixed Salaries and Benefits Fixed Operating costs Interest $ $ 400,000.00 $ 400,000.00 $ 125,000.00 $ 125,000.00 $ 400,000.00 $ 400,000.00 $ 125,000.00 $ 125,000.00 $ 400,000.00 $ 125,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00 $ $ 300,000.00 729,750.00 $ 1,029,750.00 $ 729,750.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 $ 400,000.00 125,000.00 $ 125,000.00 $ 125,000.00 $ 125,000.00 $ 300,000.00 729,750.00 $ 729,750.00 $ 773,625.00 $ 1,102,875.00 $ 4,800,000.00 1,500,000.00 600,000.00 9,708,000 $ 802,875.00 $ 802,875.00 $ 773,625.00$ 773,625.00 $ 729,750.00 $ Cash 10% (month before) Cash 60% (month of) Cash 28% (month after) $ 213,037.50 $ 213,037.50 $ 213,037.50 $ 190,612.50 $ 190,612.50 $ 156,975.00 $ 156,975.00 $ 156,975.00 $ 156,975.00 $ 156,975.00 $ 156,975.00 $ 190,612.50 2,152,800.00 $ 1,278,225.00 $ 1,278,225.00 $ 1,143,675.00 $ 1,143,675.00 $ 941,850.00 $ 941,850.00 $ 941,850.00 $ 941,850.00 $ 941,850.00 $ 941,850.00 $ 1,143,675.00 $ 1,278,225.00 12,916,800.00 $ $ 596,505.00 $ 596,505.00 $ 533,715.00 $ 533,715.00$ 439,530.00 $ 439,530.00 $ 439,530.00 $ 439,530.00 $ 439,530.00 $ 439,530.00 $ 439,530.00 $ 533,715.00 5,431,335.00 $ 1,491,262.50 $ 2,087,767.50 $ 1,953,217.50 $ 1,868,002.50 $ 1,666,177.50 $ 1,538,355.00 $ 1,538,355.00 $ 1,538,355.00 $ 1,538,355.00 $ 1,538,355.00 $ 1,740,180.00 $ 2,002,552.50 $ 20,500,935 Cash Budget $ 688,387.50 $ 1,284,892.50 $ 1,179,592.50 $ 1,094,377.50 $ 936,427.50 $ 508,605.00 $ 808,605.00 $ 808,605.00 $ 808,605.00 $ 808,605.00 $ 966,555.00 $ 899,677.50 $ 10,792,935