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 percent, 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:

HomeSuites
Operating Income
Year 1
Sales revenue
Lodging	$	138,040,000
Food & beverage		22,995,000
Miscellaneous		11,497,500
Total revenues	$	172,532,500
Costs
Labor	$	57,415,000
Food & beverage		17,246,250
Miscellaneous		13,140,000
Management		2,507,000
Utilities, etc.		40,000,000
Depreciation		10,000,000
Marketing		10,100,000
Other costs		2,800,000
Total costs	$	153,208,250
Operating profit	$	19,324,250

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 percent. Management has made the following additional assumptions for year 2:

The average room rate will increase by 8 percent.

Food and beverage revenues per night are expected to decline by 15 percent with no change in the 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 percent, 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 percent, and marketing costs will increase by 8 percent.

Other costs are not expected to change.

The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (High Price), they will work to maintain an average price of $290 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 65.0 percent with this strategy. Under the alternative strategy (High Occupancy), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $184, they can achieve an occupancy rate of 85 percent. The current estimated profit is $94,026,180.

Required:

a. Prepare a budgeted income statement for year 2 if the High Price strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

b. Prepare a budgeted income statement for year 2 if the High Occupancy strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.)

c. Which is the correct pricing strategy for year 2.

	High Price Strategy
	High Occupancy Strategy
	Current Strategy

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 percent, 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: 138 040.000 22.995,000 % 57,415,000 Food & beverage 3.140000 2.507,000 0,000.000 Operating pro 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 percent. for year 2: . The average room rate will increase by 8 percent. . Food and beverage revenues per night are expected to decline by 15 percent with no change in the 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 percent, 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 percent, and marketing costs will increase by 8 percent Other costs are not expected to change. The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (High Price"), they will work to maintain an average price of $290 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 65.0 percent with this strategy. Under the alternative strategy (High Occupancy), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $184, they can achieve an occupancy rate of 85 percent. The current estimated profit is $94,026,180