Kangan Resorts operates a lodging house with attached facilities of a shopping arcade and restaurant on a National Highway. The following details are available.

1. The lodging house has 40 twin-bedded rooms, which are to be rented for ` 200 per night on double occupancy basis. The occupancy ratio is expected at 85% and always both the beds in the room will be occupied. The lodging facilities are operated, for 200 days in the year during foreign tourists season time only.
2. As per past record the spending pattern of each tourist staying in the lodge will be as under:

` 50 per day in the shopping arcade and ` 80 per day in the restaurant.

3. Ratios of variable cost to respective sales volume are:

Shops Restaurant

50% 60%

4. For the lodging house the variable cost on house-keeping and electricity will amount

` 30 per day per occupied room.

5. Annual fixed overhead for the entire complex is estimated at ` 10,00,000.

Required

1. Prepare an income statement for the next year.
2. The Lodging House Manager suggests a proposal of reducing room rent to ` 150 per day on double occupancy basis, which will increase occupancy level to 95%. Should the proposal be accepted or not?