PART 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

Month Maintenance Expense of 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 $2010?$

PART B

part B

The rooms department$$s daily utility cost of a hotel is recorded as below:

Y $($Room Dept. Daily Utility cost $$)$ X $($Daily Rooms sold$)$

$37170$

$37068$

$38973$

$41277$

$38874$

$37369$

$36868$

$42175$

$35469$

$41681$

$37172$

$37067$

$38971$

$41276$

$38872$

$37368$

$36868$

$42177$

$35467$

$41680$

Requirements:

a$.$ Use Excel regression to find a model for estimating fixed and variable utility costs.

b$.$ What are the fixed and variable utility costs of the rooms department?

c$.$ If $86$ rooms are to be sold, what is expected total utility cost?

$2.$ 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$)$:

Buy Lease

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 $1,0001,000$

Utilities $2,0003,000$

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$).$