Module 3 A 1. High/Low method Mr. Hernandez, the manager of the Texas Inn, has asked you to estimate the hotel's repair and maintenance expense for 2010 based on 2009 results. The hotel has 500 total rooms. The information he has given you from selected 2009 monthly financial statements is as follows: Total Repair &Average Number MonthMaintenance Expenseof Rooms Occupied January$12,800350 April 13,800420 July 13,000340 October 14,000470 December 14,000465 A. What was the variable portion of repair and maintenance expense per room per month for 2009? B. Using the high/low two-point method, estimate the monthly fixed repair and maintenance expense for 2009: C. If Mr. Hernandez projects the hotel's occupancy to average 500 rooms/month during 2010, what is the hotel's estimated ANNUAL repair and maintenance expense for 2010? 2. Relevant Costs problem The Rebel Inn needs to purchase new laundry equipment. John Robinson, the new owner, is faced with the following two alternatives (assume that the laundry equipment has a three year life, and ignore the time value of money): BuyLease Cost of equipment$20,000 --- Semi-annual equipment rental ---$3,000 Salvage value in three years $4,000 --- Annual costs: Labor$15,000$15,000 Supplies 1,000 1,000 Utilities 2,000 3,000 Interest Expense 1,500 --- Repairs 300 --- A. Which of the costs shown above are irrelevant? Calculate the total cost of the "Buy" alternative over 3 years Calculate the total cost of the "Lease" alternative over 3 years: D. Which alternative do you recommend to Mr. Robinson? Why? 3. Indifference Point Calculations The Gator Restaurant currently has a variable lease that is 6 percent of its total revenue. An alternative approach is $120,000 per year. A. Determine the indifference point (5 points). B. If its annual sales are expected to be $ 3,000,000, which type of lease do you recommend? Provide figures to support your recommendation (5 points)