HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 18 properties with an average of 220 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 80 percent, 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 $138,000,000 Food & beverage 32,376,960 Miscellaneous 11,563,200 Total revenues $181,940, 160 Costs Labor $ 72,007,920 Food & beverage 18,501,120 Miscellaneous 13,875,840 Management 2,503,000 Utilities, etc. 38,250,000 Depreciation 11,250,000 Marketing 14,260,000 Other costs 8,003,000 Total costs $178,650,880 Operating profit $ 3, 289, 280 In year 1, the average fixed labor cost was $403,000 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 two new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 80 percent. Management has made the following additional assumptions for year 2. The average room rate will increase by 5 percent. Food and beverage revenues per night are expected to decline by 20 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 25 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 8 percent, and marketing costs will increase by 10 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 $216 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 70.0 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 $176, they can achieve an occupancy rate of 90 percent. The current estimated profit is $100,970,080. Required: a. Prepare a budgeted income statement for year 2 if the "High Price" strategy is adopted. b. Prepare a budgeted income statement for year 2 if the High Occupancy" strategy is adopted. - TAILLE : Required A Required B Required C 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.) HOME SUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit Required A Required B Required C 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.) HOME SUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit Required A Required B Required C Which is the correct pricing strategy for year 2. High Price Strategy High Occupancy Strategy O Current Strategy HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 18 properties with an average of 220 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 80 percent, 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 $138,000,000 Food & beverage 32,376,960 Miscellaneous 11,563,200 Total revenues $181,940, 160 Costs Labor $ 72,007,920 Food & beverage 18,501,120 Miscellaneous 13,875,840 Management 2,503,000 Utilities, etc. 38,250,000 Depreciation 11,250,000 Marketing 14,260,000 Other costs 8,003,000 Total costs $178,650,880 Operating profit $ 3, 289, 280 In year 1, the average fixed labor cost was $403,000 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 two new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 80 percent. Management has made the following additional assumptions for year 2. The average room rate will increase by 5 percent. Food and beverage revenues per night are expected to decline by 20 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 25 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 8 percent, and marketing costs will increase by 10 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 $216 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 70.0 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 $176, they can achieve an occupancy rate of 90 percent. The current estimated profit is $100,970,080. Required: a. Prepare a budgeted income statement for year 2 if the "High Price" strategy is adopted. b. Prepare a budgeted income statement for year 2 if the High Occupancy" strategy is adopted. - TAILLE : Required A Required B Required C 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.) HOME SUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit Required A Required B Required C 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.) HOME SUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit Required A Required B Required C Which is the correct pricing strategy for year 2. High Price Strategy High Occupancy Strategy O Current Strategy