HomeSuites is a chain of all$-$suite, extended$-$stay hotel properties. The chain has $20$ properties with an

average of $150$ rooms in each property. In year $1,$ the occupancy rate $($the number of rooms filled

divided by the number of rooms available$)$ was $75\%,$ based on a $365-$day year. The average room rate

was $$220$ for a night. The basic unit of operation is the $$night$,$ which is one room occupied for one

night.

The operating income for year $1$ is as follows:

$180,675,000$$

$22,995,000$

$11,497,500$

$215,167,500$

$57,415,000$$

$17,246,250$

$13,140,000$

$2,507,000$

$40,000,000$

$10,000,000$

$10,100,000$

$2,800,000$

$153,208,250$

$61,959,250$$

Food & Beverage

HOMESUITES

Operating Income

Year $1$

Sales Revenue

Lodging

Food & beverage

Miscellaneous

Total revenues

Costs

Labor

Miscellaneous

Management

Utilities, etc.

Depreciation

Marketing

Other costs

Total costs

Operating profit

In year $1,$ the average fixed labor cost was $$407,000$ 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 four new properties with no change in the average

number of rooms per property. The occupancy rate is expected to remain at $75\%.$ Management has

made the following additional assumptions for year $2$:

$$ 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 $$250$ per

night. They realize that this will reduce demand and estimate that the occupancy rate will

fall to $65\%$ 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 $$210,$ they

can achieve an occupancy rate of $85\%.$

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$).$