HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 22 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 70%, based on a 365-day year. The average room rate was $185 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 Year 1 Sales Revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & Beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs $207,977,000 30,353,400 13,490,400 251,820,800 $ 65,186,000 22,484,000 15,738,800 2,508,000 46,200,000 10,450,000 14,520,000 2,000,000 179,086,800 Total costs Operating profit $ 72,734,000 In year 1, the average fixed labor cost was $408,000 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 seven new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70%. Management has made the following additional assumptions for year 2: The average room rate will increase by 10%. Food and beverage revenues per night are expected to decline by 25% 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 30%, 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 5%, and marketing costs will increase by 5%. Other costs are not expected to change.