I am having a difficult time and I have another one and I am almost done with the class in 2 week

Chapter 9: Discussion Questions (Pg 404-405) 2. What are some of the purposes of budgeting? 4. Explain the difference between long- and short-term budgeting. 9. A cocktail lounge had May sales revenue of $40,000, budgeted revenue was $42,000. Create three questions to analyze the variance. 10. What factors need to be considered to project breakfast sales for a hotel coffee shop? 12. List the four items which must be multiplied to forecast total annual dinner food sales at a restaurant. Chapter 9: Exercises (Pg 405-407) E9.1 A restaurant has 100 seats with an average turnover of 2.5, and an average check of $14.75. If the restaurant is open 260 days/year, what is the annual sales revenue? Number of seats Seat turnover/day Average check Days open per year Estimated annual revenue 100 2.5 $14.75 260 Annual sales revenue formula: E9.2 A motel has 80 rooms, an occupancy rate of 62% and an average room rate of $74.00. What is the estimated sales revenue for the month of April? Number of rooms Occupancy rate Average room rate Days in April Estimated April revenue 80 62% $74.00 30 Monthly sales revenue formula: E9.3 A motel budgets 8,000 rooms sold at a price of $82.00/room. Actual sales were 8,480 rooms at $77.00 each. Compute the price, volume and budget variances and indicate whether they are favorable or unfavorable. Volume Price Variance Fav/Unfav? Budget Revenue Actual Revenue Variance Fav/Unfav? Price Variance Volume Variance Revenue Budget Variance E9.4 A hotel budgets 6,400 rooms sold and housekeeping costs at $4.90/room. Actual sales were 6,250 rooms and actual costs were $4.40 per room. Compute the cost, volume and budget variances and indicate whether they are favorable or unfavorable. Volume Cost Variance Fav/Unfav? Budget Cost Actual Cost Variance Fav/Unfav? Cost Variance Volume Variance Cost Budget Variance E9.6 A motel has 45 rooms, an occupancy rate of 76% and an average room rate of $58.00. Fixed costs are $480,000 and the variable cost per room sold is $8.00. What is the estimated annual sales revenue and operating income? Number of rooms Occupancy.rate Average room rate Days open per year Estimated revenue Fixed costs Variable cost/room sold Total variable costs Operating income 45 76% $58.00 365 $480,000 $8.00 Annual variable cost formula: Operating income formula: E9.7 An 80 seat coffee shop is open 365 days per year. What is the estimated annual sales revenue given the turnover and average check per meal data below? Breakfast Lunch Dinner Total projected revenue Seats 80 80 80 Turnover 2.50 1.75 2.75 Avg check $7.80 $8.75 $11.25 E9.10 A restaurant has budgeted sales of $912,000. Variable costs are 72% of sales and fixed costs are $102,000. Calculate total variable costs, gross margin and operating income. Days open 365 365 365 Annual revenue Sales Variable cost rate Total variable costs Gross margin Fixed costs Operating income $912,000 72% $102,000 Chapter 9: Problem 9.1 (Pg 407) P9.1 A motel has 40 rooms. During June average room rate is $80, occupancy is 74%. In July room rates increase by 10% and occupancy is 84%. In August rates are the same as July but occupancy is 92%. Calculate revenue each month. Number of units Average room rate June Days in June Occupancy rate June Estimated revenue June Average room rate July Days in July Occupancy rate July Estimated revenue July Average room rate August Days in August Occupancy rate August Estimated revenue August 40 $80.00 74% 84% 92% Chapter 9: Problem 9.2 (Pg 407) P9.2 As manager of a 60 room motel you must prepare an annual budget. Occupancy will be 74%, average room rate is $84, variable cost per room sold is $8 and annual fixed costs are $825,000. Prepare the operating forecast and income statement below. Number of rooms Occupancy Days open Average rate Variable cost/room Annual fixed cost Annual rooms sold Revenue Variable cost Fixed cost Operating income 60 74% 365 $84.00 $8.00 $825,000 Chapter 9: Problem 9.5 (Pg 408) P9.5 Buff's Buffet wants a flexible budget prepared for three revenue levels: $800,000, $900,000 and $1 million. Variable costs include Food @ 38%, Labor @ 28% and Other @ 10%. Fixed costs include Salaries @ $52,000 and Other @ $120,000. Income tax rate is 29%. Prepare the three budgets. Revenue level Food cost Labor cost Other variable costs Total Variable Cost Contribution Margin Salaries Other fixed costs Total Fixed Cost Operating Income Income tax Net income $800,000 $900,000 $1,000,000 38% 28% 10% $52,000 $120,000 29% Comment on the results, especially the change in income compared to sales. Using the Total Fixed Cost and the Variable Cost %, calculate the Break-Even Revenue level: Total Fixed Cost Total Variable Cost % Break-Even Revenue Chapter 9: Problem 9.6 (Pg 408) 9.6 A resort hotel's dining room is fully dependent upon guests for its sales. The hotel has 150 rooms and 80% occupancy in June. Each occupied room averages 3 guests. The dining room serves 95% of guests at breakfast, 25% at lunch and 75% at dinner. The dining room is open every day for all meals and check averages are $7.50 for breakfast, $12.50 for lunch, $25.20 for dinner. Project dining room revenue by meal and in total for June. Number of rooms Occupancy rate Days in June Rooms occupied in June Average guests per room Total guests Dining room revenue Check average Guests dining Revenue 150 80% 3 Breakfast $7.50 95% Lunch $12.50 25% Dinner $25.20 75% Total Chapter 9: Problem 9.8 (Pg 410) 9.8 The owner of a restaurant is considering two alternatives to improve operating results. The first alternative reduces food costs from 42% to 37% by improved purchasing and reduced portions. No other changes. The second alternative also cuts food costs to 37% but also spends $2,000 on advertising to increase food and beverage sales by 20%. Extra customers will cause costs to increase in these categories: $2,000 in wages, $800 in supplies, $200 in administrative, $300 in repairs and $100 in utilities. Prepare the alternative projections. Current Sales - Food Sales - Beverage Total Sales Cost of Sales - Food Cost of Sales - Beverage Total Cost of Sales 13,600 4,000 2,600 1,800 900 1,300 700 600 $25,500 Alternative I Operating Income $4,700 Advise the owner on which alternative to select and why. $40,000 10,000 Alternative II $30,200 Operating Expenses Wages Supplies Administrative & General Advertising & Promo Repair Utilities Depreciation Interest Total Expenses Alternative II 16,800 3,000 $19,800 Gross Margin Alternative I $40,000 10,000 $50,000 20% 20% 13,600 4,000 2,600 1,800 900 1,300 700 600 $25,500 700 600 37% 30% Cost % Cost % $2,000 $800 $200 $2,000 $300 $100 37% 30% Added sales Added sales Added expense Added expense Added expense Added expense Added expense Added expense Chapter 9: Problem 9.11 (Pg 412-413) 9.11 Prepare an operating budget for a 100 room motel with a 64% occupancy and $72.00 ADR. It has a 65 seat coffee shop open 7 days per week for all meals, a 75 seat dining room open 6 days per week for lunch and dinner only and a 90 seat cocktail lounge open 310 days per year which serves 20 food orders @ $8.50 per meal per day. Beverage sales are $5,250 per cocktail lounge seat and 15% of the combined lunch/dinner sales in the coffee shop and 25% of the combined lunch/dinner sales in the dining room. Variable costs are 35% for food, 32% for beverages, Note that for every 16 rooms occupied each day one housekeeping shift @ $8.50/hour is required. All variable cost rates and fixed costs are listed in the table. Prepare a contributory income statement for each revenue center and then prepare a consolidated income statement which included undistributed indirect expenses to arrive at EBITDA for the entire business. Computation of room division revenue Number of rooms Occupancy rate Average room rate Days open per year Room sold Rooms revenue 100 64% $72.00 365 Computation of room division contributory income Rooms revenue Fixed wages Housekeeping wages Total wages Benefits (12% of wages) Linen (6% of rooms revenue) Supplies (3% of rooms revenue) Total rooms cost Rooms contributory income $326,900 Housekeeping cost formula: Computation of dining room food revenue Lunch $8.25 1.50 Dinner $14.00 1.00 75 75 Breakfast $5.75 1.00 Lunch $7.75 1.50 Dinner $9.95 1.00 Breaks $1.75 6.00 65 65 65 65 Check average Turnover Days (6 days/week, 52 weeks/yr) Seats Total dining room revenue Total Computation of coffee shop food revenue Check average Turnover Days (365/year) Seats Total coffee shop revenue Computation of cocktail lounge food revenue Check average Orders per day Days open per year Total cocktail lounge food revenue $8.50 20 310 Computation of contributory income for food Revenue Dining room food revenue Coffee shop food revenue Cocktail lounge food revenue Total food revenue Cost for Food Food cost 35% Payroll 45% Laundry 2% Supplies 5% Other costs 2% Total operating cost Food contributory income Computation of beverage revenue Cocktail lounge seats $5,250 per cocktail seat Coffee shop (15% of lunch+dinner) Dining room (25% of lunch+dinner) 90 Total Total beverage revenue Computation of contributory income for beverage Beverage revenue Liquor cost 32% Payroll 25% Supplies 5% Total costs Beverage contributory income Overall contributory income statement Contributory income Room Food Beverage Total contributory income Fixed costs Administrative Marketing Utilities Operations & Maintenance Insurance Property taxes Total fixed costs EBITDA $156,800 147,600 58,900 52,400 15,300 82,100 Chapter Six - Part Two - Discussion Questions (Pg. 288) 6.11 Why is loss of sales from hotel rooms not occupied a greater problem than loss of sales from restaurant customers not showing up? 6.13 Why is the averge room rate different from the rack rate? 6.14 Describe how a double occupancy percentage for rooms is calculated. 6.16 Define the terms rack rate and potential average room rate. 6.17 Define the term elasticity of demand. 6.18 State the equation for calculating elasticity of demand. 6.19 What implications does the breakdown of costs into fixed and variable categories have on the pricing decision? Chapter Six - Part Two - Exercises (Pg. 289-290) E6.7 A hotel reported 18,760 rooms sold with a total of 23,450 guests. What was the double occupancy rate? Guests Rooms occupied Rooms with more than 1 guest 23,450 18,760 4,690 Double Occupancy Rate 25.0% Double Occupancy Formula: GuestsRooms Occupied. Calculation: 23,450 18,760 18,760 18,760 4,690 25.0% E6.8 A 50 room hotel has a 74% occupancy rate and projected annual sales of $842,712. What is the average room rate? Number of rooms Occupancy rate Revenue Rooms sold Average Room Rate Formula: Equation: Total room 50 74.0% $842,712 revenue/Room's Occupancy % 365=Average Room Rate Calculation: $842,712 $842,712 $62.40 50 74% 365 13,505 Average Room Rate E6.10 Using the following information, determine the average single and double room rates. Rooms sold per day Rooms double occupied % double occupied Spread on room rate Average daily revenue Average Daily Rate (ADR) 60 24 Single Room Rate Equation: Calculating single and double room rates with a $12.00 $12.00 $2,988.00 spread. Rooms sold per day 60 Double rooms per day (24) Single rooms per say 36 Calculation: 36x + 24 (x + $12.00) = $2,988 36x + 24x + $288= $2,988 60x= $2,988 $288 = $2,700 x= $2,700 / 60 = $45.00 Single rate Single Occupancy Rate Double Occupancy Rate Verify the calculated rates Number Single rooms Double rooms Daily Revenue Dollars Single rate $45.00 + $12.00 = $57.00 double rate Proof 36 singles$45.00=$1,620 24 doubles$57.00= 1,368 Average daily rooms revenue =$2,988 Chapter Six - Part Two - Problems (Pg. 293) P6.7 Use the following information for a 40 room hotel with a 70% occupancy rate and a 27% variable cost rate (operating expenses, wages, supplies, laundry, etc.) First determine the Total Known Fixed Costs Cost Category Administrative and General Marketing Energy Repairs and Maintenance Property Taxes Insurance Mortgage Interest: 8% x $601,000 Mortgage Interest: 12% x $402,000 Building Depreciation: 5% x $1,860,000 Equipment Depreciation: 20% x $382,000 Fixed or Variable % Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Dollars $38,300 28900 35100 28800 17600 4800 48080 48240 9300 76400 Total Known Fixed Costs $335,520 Next, calculate the Offsetting Income or Loss from support departments Telephone Income/(Loss) Food & Beverage Income/(Loss) Income Income (9,700) 103,200 Total Offsetting Income/(Loss) 112,900 Combine the costs and income to obtain the Net Known Fixed Costs Total Known Fixed Costs Total Offsetting Income/(Loss) Fixed Income Net Known Fixed Costs Now determine the Pre-Tax Income required to generate the desired 15% Return on the Owner's $280,000 investment in the hotel using a 25% income tax rate. Net Income: 15% ROI on $280,000 Income Pre-Tax Income before 25% Taxes Formula for Pre-Tax Income: Add the Required Pre-Tax Income to the Net Known Fixed Costs Net Known Costs + Required Income Determine Total Required Revenue, given the above and a 27% Variable Cost Rate Total Required Revenue @27% Variable Costs Formula for Required Revenue: What is the Required Average Daily Room Rate to achieve this Revenue? Required Revenue Rooms Days Open Occupancy Rate Number of Rooms Sold 40 365 70.0% Average Daily Room Rate Formula for Average Daily Rate: If the hotel operated at a 25% double occupancy rate and a $15 spread between single and double rates, what are those rates? Rooms Sold per Day Rooms Double Occupied % Double Occupied Spread on Room Rate Average Daily Revenue Average Daily Rate (ADR) 25% $15.00 Single Occupancy Rate Double Occupancy Rate Formula for Single Room Rate: Verify the calculated rates Number Single rooms Double rooms Daily Revenue Dollars Chapter Six - Part Two - Problems (Pg. 293) P6.8 Use the following information for a 30 room hotel with a 70% occupancy rate First determine the Total Known Fixed Costs Cost Category Indirect Costs Mortgage Interest: 10% x $359,000 Mortgage Interest: 14% x $140,000 Building Depreciation: 5% x $632,000 Equipment Depreciation: 20% x $117,000 Fixed Fixed Fixed Fixed Fixed Dollars $44,800 35,900 19,600 31,600 23,400 Total Known Fixed Costs $155,300 Next, calculate the Offsetting Income or Loss from support departments Restaurant Income Income 12,000 Total Offsetting Income/(Loss) 143,300 Combine the costs and income to obtain the Net Known Fixed Costs Total Known Fixed Costs Total Offsetting Income/(Loss) Fixed Income 155,300 143,300 Net Known Fixed Costs 298,600 Now determine the Pre-Tax Income required to generate the desired 12% Return on the Owner's $520,000 investment in the hotel using a 24% income tax rate. Net Income: 12% ROI on $520,000 Income Pre-Tax Income before 24% Taxes Formula for Pre-Tax Income: Add the Required Pre-Tax Income to the Net Known Fixed Costs Net Known Costs + Required Income Now add the Direct Costs to determine the Total Required Revenue Net Known Costs + Required Income Direct Costs 59,300 Total Required Revenue What is the Required Average Daily Room Rate to achieve this Revenue? Required Revenue Rooms Days Open Occupancy Rate Number of Rooms Sold 30 365 70.0% Average Daily Room Rate Formula for Average Daily Rate: If the hotel operated at a 60% double occupancy rate and a $12 spread between single and double rates, what are those rates? Rooms Sold per Day Rooms Double Occupied % Double Occupied Spread on Room Rate Average Daily Revenue Average Daily Rate (ADR) 60% $12.00 Single Occupancy Rate Double Occupancy Rate Formula for Single Room Rate: Verify the calculated rates Number Single rooms Double rooms Daily Revenue Dollars Chapter Six - Part Two - Problems (Pg. 294-295) P6.12 The Inviting Inn has 500 available guest rooms. For a certain week next month the anticipated demand for transient guest rooms and committed groups sales is as follows: Total Rooms Available M 500 T 500 W 500 Th 500 F 500 S 500 Su 500 Total 3,500 Expected transient (walk-in) demand @ $80ight Group sales committed @ $60ight Total Expected Room Sales 200 200 400 200 200 400 200 300 500 200 300 500 100 100 200 50 100 150 50 100 150 1,000 1,300 2,300 Rooms available after expected transient & group sales 100 100 0 0 300 350 350 1,200 The Inn has the opportunity to book another 100 person group for Tues/Wed/Thur/Fri at $60ight per guest. However, this might displace some transient guests. Potential additional group sales @ $60ight Total room demand (transient, committed groups & potential groups) Note: Maximum rooms available = 500 Transient business displaced if additional group is booked The marginal cost for rooms sold is $15ight. Calculate the additional marginal income from booking the 100 person group for the four nights: Potential revenue gain from booking the additional group @ $60ight Less marginal cost of rooms @ $15ight Net gain from booking the additional group Calculate the potential lost income caused by displacing transient guests. Lost revenue from transient guests displaced @ $80ight Less marginal cost of rooms @ $15ight Net loss from transient guests displaced Compute the net gain or loss from booking the additional group. Gain or (loss) from additional booking Should the Inviting Inn agree to book the new group for four nights? Chapter Six - Part Two - Discussion Questions (Pg. 288) 6.11 Why is loss of sales from hotel rooms not occupied a greater problem than loss of sales from restaurant customers not showing up? The fixed cost for a restaurant are lower than the fixed cost for a hotel, also a hotel only sells one room a day and a restaurant has many customers a day by turning seats over and over. 6.13 Why is the averge room rate diff erent from the rack rate? Rack rate is the full price of a room before the discounts are applied 6.14 Describe how a double occupancy percentage for rooms is calculated. number of guestumber ofoccupied rooms 6.16 Define the terms rack rate and potential average room rate. Potential average room rate is the revenue the hotel would receive if they were multiple and at 100%. Rack rate is the full price rooms are sold to customers before discounts are applied. 6.17 Define the term elasticity of demand. This is when demand for a good or service varies with its price. Sales increase with drop in prices and decrease with rise in prices. Change in demand based on change in price. 6.18 State the equation for calculating elasticity of demand.(% change in quantity demanded)/(% change in price) 6.19 What implications does the breakdown of costs into fixed and variable categories have on the pricing decision? Fixed cost exist regardless of the revenue level. Variable cost are a function of revenue, pricing must cover variable cost and fixed cost in the long run. Chapter Six - Part Two - Exercises (Pg. 289-290) E6.7 A hotel reported 18,760 rooms sold with a total of 23,450 guests. What was the double occupancy rate? Guests Rooms occupied Rooms with more than 1 guest 23,450 18,760 4,690 Double Occupancy Rate 25.0% Double Occupancy Formula: GuestsRooms Occupied. Calculation: 23,450 18,760 18,760 18,760 4,690 25.0% E6.8 A 50 room hotel has a 74% occupancy rate and projected annual sales of $842,712. What is the average room rate? Number of rooms Occupancy rate Revenue Rooms sold Average Room Rate Average Room Rate Formula: Equation: Total room 50 74.0% $842,712 13,505 revenue/Room's Occupancy % 365=Average Room Rate Calculation: $842,712 $842,712 $62.40 50 74% 365 13,505 $62.40 E6.10 Using the following information, determine the average single and double room rates. Rooms sold per day Rooms double occupied % double occupied Spread on room rate Average daily revenue Average Daily Rate (ADR) Single Occupancy Rate Double Occupancy Rate 60 24 40% $12.00 $2,988.00 $49.80 Single Room Rate Equation: Calculating single and double room rates with a $12.00 spread. Rooms sold per day 60 Double rooms per day (24) Single rooms per say 36 Calculation: 36x + 24 (x + $12.00) = $2,988 36x + 24x + $288= $2,988 60x= $2,988 $288 = $2,700 x= $2,700 / 60 = $45.00 Single rate $45.00 40% Verify the calculated rates Number Single rooms Double rooms Daily Revenue Dollars 36 24 Single rate $45.00 + $12.00 = $57.00 double rate Proof 36 singles$45.00=$1,620 24 doubles$57.00= 1,368 Average daily rooms revenue =$2,988 Chapter Six - Part Two - Problems (Pg. 293) P6.7 Use the following information for a 40 room hotel with a 70% occupancy rate and a 27% variable cost rate (operating expenses, wages, supplies, laundry, etc.) First determine the Total Known Fixed Costs Cost Category Administrative and General Marketing Energy Repairs and Maintenance Property Taxes Insurance Mortgage Interest: 8% x $601,000 Mortgage Interest: 12% x $402,000 Building Depreciation: 5% x $1,860,000 Equipment Depreciation: 20% x $382,000 Fixed or Variable % Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Fixed Dollars $38,300 28900 35100 28800 17600 4800 48080 48240 9300 76400 Total Known Fixed Costs $419,220 Next, calculate the Offsetting Income or Loss from support departments Telephone Income/(Loss) Food & Beverage Income/(Loss) Income Income (9,700) 103,200 Total Offsetting Income/(Loss) 93,500 Combine the costs and income to obtain the Net Known Fixed Costs Total Known Fixed Costs Total Offsetting Income/(Loss) Fixed Income 419,220 93,500 Net Known Fixed Costs 325,720 Now determine the Pre-Tax Income required to generate the desired 15% Return on the Owner's $280,000 investment in the hotel using a 25% income tax rate. Net Income: 15% ROI on $280,000 Income 42,000 Pre-Tax Income before 25% Taxes 56,000 Formula for Pre-Tax Income: Add the Required Pre-Tax Income to the Net Known Fixed Costs Net Known Costs + Required Income 381,720 Determine Total Required Revenue, given the above and a 27% Variable Cost Rate Total Required Revenue @27% Variable Costs $522,904 Formula for Required Revenue: What is the Required Average Daily Room Rate to achieve this Revenue? Required Revenue Rooms Days Open Occupancy Rate Number of Rooms Sold $522,904 40 365 70.0% 10,220 Average Daily Room Rate $51.16 Formula for Average Daily Rate: If the hotel operated at a 25% double occupancy rate and a $15 spread between single and double rates, what are those rates? Rooms Sold per Day Rooms Double Occupied % Double Occupied Spread on Room Rate Average Daily Revenue Average Daily Rate (ADR) 28 7 25% $15.00 $1,432.61 $51.16 Single Occupancy Rate $47.41 51.16-3.75 Double Occupancy Rate $62.41 Formula for Single Room Rate: Verify the calculated rates Number Single rooms Double rooms Daily Revenue 21 7 Dollars $995.71 $436.90 $51.16 Chapter Six - Part Two - Problems (Pg. 293) P6.8 Use the following information for a 30 room hotel with a 70% occupancy rate First determine the Total Known Fixed Costs Cost Category Indirect Costs Mortgage Interest: 10% x $359,000 Mortgage Interest: 14% x $140,000 Building Depreciation: 5% x $632,000 Equipment Depreciation: 20% x $117,000 Dollars $44,800 35,900 19,600 31,600 23,400 Fixed Fixed Fixed Fixed Fixed Total Known Fixed Costs $155,300 Next, calculate the Offsetting Income or Loss from support departments Restaurant Income Income 12,000 Total Offsetting Income/(Loss) 12,000 Combine the costs and income to obtain the Net Known Fixed Costs Total Known Fixed Costs Total Offsetting Income/(Loss) Fixed Income 155,300 12,000 Net Known Fixed Costs 143,300 Now determine the Pre-Tax Income required to generate the desired 12% Return on the Owner's $520,000 investment in the hotel using a 24% income tax rate. Net Income: 12% ROI on $520,000 Income 6,240 62400/1-tax rate Pre-Tax Income before 24% Taxes 82,105 Formula for Pre-Tax Income: Add the Required Pre-Tax Income to the Net Known Fixed Costs Net Known Costs + Required Income 225,405 Now add the Direct Costs to determine the Total Required Revenue Net Known Costs + Required Income Direct Costs 225,405 59,300 Total Required Revenue 284,705 What is the Required Average Daily Room Rate to achieve this Revenue? Required Revenue Rooms Days Open Occupancy Rate Number of Rooms Sold $284,705 30 365 70.0% 7,665 Average Daily Room Rate $37.14 308705.26 (I had an issue and this might be the right number) 7.2 Formula for Average Daily Rate: If the hotel operated at a 60% double occupancy rate and a $12 spread between single and double rates, what are those rates? Rooms Sold per Day Rooms Double Occupied % Double Occupied Spread on Room Rate Average Daily Revenue Average Daily Rate (ADR) 21 30 rooms x 70% 13 actually 12.6 60% $12.00 $780.01 $37.14 Single Occupancy Rate $29.94 Double Occupancy Rate $41.90 Formula for Single Room Rate: Verify the calculated rates Number Single rooms Double rooms Daily Revenue 8 13 Dollars $251.53 $528.49 $780.01 8.4 is actual number 12.6 Chapter Six - Part Two - Problems (Pg. 294-295) P6.12 The Inviting Inn has 500 available guest rooms. For a certain week next month the anticipated demand for transient guest rooms and committed groups sales is as follows: Total Rooms Available M 500 T 500 W 500 Th 500 F 500 S 500 Su 500 Total 3,500 Expected transient (walk-in) demand @ $80ight Group sales committed @ $60ight Total Expected Room Sales 200 200 400 200 200 400 200 300 500 200 300 500 100 100 200 50 100 150 50 100 150 1,000 1,300 2,300 Rooms available after expected transient & group sales 100 100 0 0 300 350 350 1,200 The Inn has the opportunity to book another 100 person group for Tues/Wed/Thur/Fri at $60ight per guest. However, this might displace some transient guests. Potential additional group sales @ $60ight Total room demand (transient, committed groups & potential groups) Note: Maximum rooms available = 500 Transient business displaced if additional group is booked The marginal cost for rooms sold is $15ight. Calculate the additional marginal income from booking the 100 person group for the four nights: Potential revenue gain from booking the additional group @ $60ight Less marginal cost of rooms @ $15ight Net gain from booking the additional group $0 $100 $100 $100 $100 $0 $0 ($100) $0 $100 $100 ($200) ($350) ($350) Calculate the potential lost income caused by displacing transient guests. Lost revenue from transient guests displaced @ $80ight Less marginal cost of rooms @ $15ight Net loss from transient guests displaced Compute the net gain or loss from booking the additional group. Gain or (loss) from additional booking Should the Inviting Inn agree to book the new group for four nights? yes $5,000