In the country of Nairobia, there is a new theme park resort called Bukalo Park Resort. A theme park, a lodge and an indoor water park make up the resort. Two months ago, the resort opened and is already quite popular.

As all Nairobian theme parks are required by law to shut down due to the possibility of accidents in the colder month of January, Bukalo Park Resort must determine whether to shut down the entire resort or only the theme park. The lodge and/or the water park may remain open even if the theme park is closed.

Since Bukalo Park Resort has not been open for a long time, there is minimal historical cost and revenue data available.

However, based on the last two months, the following average monthly data is available:

Lodge
Number of rooms	120
Average room rate per night	N$100
Average occupancy rate per month	90%
Average nightly spend on ‘extras’ per room	N$20
Contribution margin for ‘extras’ *	60%
Water park
Number of visitors per month	12,000
Admission price per visitor	N$21
Average spend on extras per visitor	N$12
Contribution margin for ‘extras’*	60%

*‘Extras’ include anything purchased by the customer not included in the room rate or admission price.

Management predicts that the average room rate per night will need to decrease by 30 percent for January and 20 percent for the admission price for the water park. With such cuts, it is projected that the Lodge will reach an occupancy rate of 50 percent and that the number of visitors to the water park would be 52 percent lower than the current levels. It is anticipated that the average nightly expenditure on 'extras' per room of N$20 at the Lodge and N$12 per client at the water park will remain unchanged.

The running costs for the Lodge and water park for each of the last two months are as follows:

	Notes	Lodge	Water park
		N$	N$
Staff costs	1	120,000	75,600
Maintenance costs	2	14,600	6,000
Power costs	3	20,000	18,000
Security costs	4	13,600	8,000
Water costs	5	12,900	12,100

Notes:

(1) Staff costs

Permanent staff

The salary of N$30,000 per annum for the lodge manager and N$24,000 per annum for the head chef is included in the personnel expenses for the lodge. They are both permanent staff members who, regardless of their working hours, are paid for the entire year.

The water park hires one permanent staff member, the manager, on a salary of N$24,000, who is also paid irrespective of his working hours for the full year.

Temporary staff

The remaining staff costs relate to temporary staff who are only paid for the hours they work. If the Lodge stays open in January, half of these staff members will continue to work their current hours because their jobs are largely unaffected by guest occupancy rates. However, the other half of the staff will work proportionately less hours to reflect the 50% occupancy rate in January as opposed to the 90% occupancy rate of the last two months.

At the water park, the temporary staff’s working hours will fall according to the number of visitors, hence a fall of 52% would be expected for January.

(2) Maintenance costs

A local business, 'Techno Electricals', which charges Bukalo Park Resort for all work performed each month, carries out maintenance. If the lodge and water park are closed, a flat fee of N $ 4,000 for the lodge and N $ 2,000 for the water park would instead be charged to Techworks for the month.

(3) Power costs

Electricity

Bukalo Park Resort pays a fixed monthly charge of N$8,000 for the lodge's electricity and N$7,000 for the year-round for the water park.

Paraffin Gas costs

The payments for Paraffin apply to heating and include a fixed fee for the Lodge of N$2,200 per month and N$1,500 per month for the water park. The remainder of the charges for Paraffin are dependent solely on usage and are expected to rise by 50 percent in January due to the colder weather.

(4) Security costs

Should the lodge and water park close, while the grounds are vacant, no changes will be made to the existing security arrangements.

(5) Water costs

Water costs for the lodge are expected to fall to N$6,450 for the month if it remains open in January.

However, it would be expected that the water costs for the water park would remain at their present level. All water would be shut off if the lodge and water park were closed, and no charges would occur.

Required: What is the total incremental maintenance cost for the water park?

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