Chapter 4: Variable Costing and Segment Reporting Problem 3 The Bosch Garden Hotel lone Lok, the controller of the Bosch Garden Hotel in the Canary Islands was trying to figure out how the eruption of the volcano in La Palma could affect the profitability of the hotel. The emissions from the volcano could create an ash cloud that would limit the air traffic in the region, resulting in reduced touristic activity. She was analyzing the Income Statement for the year ending on August 31 2021 and was trying to figure out how much business could deteriorate at the hotel and still be profitable. The hotel had 140 rooms and last year its average room rate had been 170 euros. The income statement for the whole Bosch Garden Hotel for the year ending on August 31 2021 was: Revenues Variable Expenses Hotel Total $7,350,000 2,925,000 Contribution Margin 4.425.000 Operating Expenses: Administrative & General 1,250,000 Sales & Marketing 750,000 Gross Operating Profit 2.425.000 Rent, Property Taxes, and Insurance 250,000 Depreciation 625,000 Net Operating Income 1,550,000 Interest Expense 1,200,000 Income Before Taxes 350,000 Income Taxes (21%) 73,500 Net Income 276.500 Lok was also interested in the profitability of the different operating departments and she had gathered the following information: