Please answer the following questions based on the case facts: (NOT MISSING ANYTHING LIKE DATA OR GRAPHS BECAUSE IT IS NOT NEEDED, ONLY USE THE CASE FACTS TO SUMMARIZE)
1) What are major issues/problems?
2) What are the decision-makers goals and objectives?
3) Are there other stakeholder needs or preferences?
4) Are there any internal or external constraints to consider?
5) How would you classify Lone Star's competitive strategy and why? (hint: refer back to Chapter 1 for the discussion on cost leadership and differentiation)
6) What does Table 4 reveal about Jack Smith's assumptions regarding fixed and variable costs? Are these assumptions reasonable?
Lone Star Lodging
INTRODUCTION as the total number of rooms rented (output) divided by the number of rooms available during the period (capacity). In Sitting at his desk reviewing the results of the last year, Jack preparing his budget, Smith expected the 2017 market size Smith reflected on his second year as General Manager of to be 10% higher than the 2016 market size. For 2017, the the Lone Star Motel. Next week is the Regional Operations benchmarking firm reported that local competitors rented Review in nearby Lubbock, Texas, where managers from 77,291 rooms at an ADR of $59.80. surrounding areas will gather with Victoria Jennings, Regional Smith turned to the report detailing budgeted and actual Vice President of Operations. Smith will need to summarize the revenue and expense data (see Table 2). Accounting provided hotel's performance and, recalling variance analysis, thought this Smith with the hours worked by hotel staff. The maintenance tool would be a rigorous way to conduct his analysis. worker and general manager are normally full-time workers (that is, 40 hours per week, 50 weeks a year). All other workers COMPANY BACKGROUND are considered full time, though many of them work less than 40 hours per week (see Table 3). In preparing the budget, The Lone Star Motel is a 126-room economy-lodging hotel in Smith planned on housekeeping staff using a standard time Amarillo, Texas. Built in 1980, it is part of Lone Star Lodging. of 30 minutes per room with a wage rate of $7.00 per hour. a privately-owned hotel chain headquartered in suburban The head housekeeper's wage was budgeted at $9.50 per Houston, Texas. Lone Star Lodging operates a network of hour and usually works 40 hours. With a small staff, the head 207 hotels in four states: Texas, New Mexico, Oklahoma and housekeeper also cleans rooms. Her productivity appears lower Arkansas. About half of the hotels are owned and operated by (that is, cleans fewer rooms) because of her supervisory duties the company. (inspections and employee training) and the need to complete the room inventory form. Accordingly, during slow periods, the PRESENT SITUATION head housekeeper may work fewer hours. Smith anticipated having one person staffing the front desk at all hours. With the Renovated two years ago, the hotel competes with 16 other exception of the general manager, employees do not get paid economy-lodging hotels in a market that is more competitive vacation time. Further, with high turnover, most employees do than most. However, when thinking about its market share, not receive benefits (healthcare and retirement contributions). company management actually considers three nearby hotels Table 4 shows the monthly budget Smith developed to be the hotel's direct competitors. Sales data on regional and to submit to corporate accounting as his required annual local competitors for the past five years are regularly obtained budget. A description of accounts is given in the Appendix. from an industry benchmarking firm (see Table 1). In the Next week is Smith's operations review meeting with hospitality industry, average sales price is average daily rate Victoria Jennings. Having gathered all the data needed (ADR), defined as the total room revenue divided by the for a comprehensive variance analysis, he would like your number of rooms rented. Another industry-standard metric, help doing the calculations, interpreting the numbers, and occupancy, represents capacity utilization. Occupancy is defined preparing his report and presentation.Table 1: Local and Regional Competitor Sales Data Local Competitors Metropolitan Area Rooms ADR Occupancy Rooms ADR Occupancy Year Rented (US$) (9%) Rentals USS (9%) 2012 96.099 50.77 58.72 181,361 47.53 56.11 2013 104,013 64.70 58.16 196,033 54.78 59.15 2014 100,651 65.86 55.86 215,797 59.04 62.80 2015 94.268 67.67 51.55 218,162 62.73 59.35 2016 79.391 62.40 43.41 192,519 55.73 51.81 Note: ADR is average daily rate and is measured as total revenue divided by the number of rooms rented (ie., sales price). Occupancy is measured as rooms rented divided by the total number of rooms available x 100 (ie., capacity utilization). Table 2: 2017 Profit-and-Loss Summary for the Amarillo Property Panel A: Summary Statistics and Revenues Budget Actual Rooms Available 45.990 45,990 Rooms Rented 27,376 25,435 Occupancy 59.5% 55.3% Average Daily Rate (ADR) 43.79 44.65 Revenue per Available Room (RevPAR) 26.07 24.69 REVENUES Room Rentals $ 1,200,138 $ 1,136,619 Revenue Allowance (1,280) (1,060) Total Room Revenue $ 1,198,858 $ 1,135.559 Internet Access 4,900 5,534 Vouchers 5,000 1,262 Laundry 1,310 1.240 Vending 3,900 3,708 Total Other $ 15.110 11.744 TOTAL REVENUE $ 1,213,968 $ 1,147,303 Note: All monetary values are represented in U.S. dollars.Table 2: 2017 Profit-and-Loss Summary for the Amarillo Property Panel B: Expenses Budget Actual EXPENSES General Manager 28.800 27.434 Front Desk Staff 72.000 82.089 Total Front Office $ 100,800 109,523 Head Housekeeper 19,000 22,226 Housekeepers and Laundry 81.816 82.556 Total Housekeeping $ 100,816 104,782 Maintenance Wages 20,700 23,577 Regional Maintenance Support 3,180 6,452 Incentive Pay (Staff) 0 0 Bonus Expense, General Manager 2.520 1,346 Payroll Tax Expense 19,381 21,339 Total Other-Personnel Payroll 45,781 52,714 Gross Payroll 247,397 267,019 Vacation Expense 5,700 3.494 Holiday Expense 1,620 1,690 Staff Incentives 640 639 Employee Relocation Expense 0 1,506 Employee Training 2.260 576 Workers Compensation 18,000 17,588 Health Insurance 28.800 20,005 Retirement Plan Contribution Expense 720 841 Group Life Insurance 672 613 Total Benefits Expense $ 58.412 46.952 Total Personnel Costs $ 305,809 $ 313,971 Supplies, Cleaning Chemicals 6,083 Supplies, Linens 13,916 Supplies, Other 18,064 Total Supplies $ 26,007 38,063 Memberships and Subscriptions 300 0 Travel 3,360 4,141 Meals 840 921 Total Travel and Meals $ 4,500 5,062 Note: All monetary values are represented in U.S. dollars.Table 2: 2017 Profit-and-Loss Summary for the Amarillo Property Panel B: Expenses (continued) Budget Actual Bad Debt Expense $ 0 $ 350 Cash Shortage and Excess 113 Bank Deposit Shortage and Excess 0 27 Credit Card Chargeback 0 619 Credit Card Fees 14,568 14,376 Guest Vouchers 1,200 540 Refunded Rentals 1,000 1.887 Total Other Expense $ 16,768 17,912 Other External Services 600 722 Total Miscellaneous Operating Expenses 21,868 23.696 Property Marketing 6,000 4,807 Building $ 1,800 1,913 Landscaping 9,900 10,524 Contracts 8,100 8,460 Laundry 6,000 2,713 Rooms (floors, doors, windows) 2,400 5,610 HVAC 4,800 3,219 Pool 1,600 2,447 Electrical and Fire 4,320 5,852 Plumbing 3,300 5,243 Supplies 3,600 4,160 Unclassified (including petty cash) 900 2.411 Total RAM 46,720 52,552 Electricity $ 42,000 36,144 Natural Gas 16,800 13.428 Water 33.000 21.919 Total Energy $ 91,800 71,491 Garbage Collection $ 3,720 3,494 Sewer 18.900 16,160 Salt (Water Softener) 2,100 1,740 Telephone 12,000 10,524 Satellite Television Fees 15,000 13,413 Utility Fees 900 802 Total Other Utilities 52.620 46.133 TOTAL EXPENSES 550.824 550.713 PROFIT 663,144 596,590 Note: All monetary values are represented in U.S. dollars.Table 3: Employee Information by Job Type Hours Hourly Employee ID Worked Wage Rate General Manager 44215 2,040.0 $13.45 Front Desk Employees 251256 2,077.1 $8.98 488442 (front desk supervisor) 2,087.5 $9.72 743796 1,610.1 766468 $8.45 1,520.0 $8.55 871219 1,425.1 $8.60 980511 517.1 $8.30 Head Housekeeper 134076 2,291.3 $9.70 Housekeepers 172931 1,462.2 $8.15 215403 1,627.8 $8.10 219100 1,249.2 $8.10 264365 1,117.2 $7.60 306002 1,188.0 $7.65 322777 1,151.5 $7.55 352605 423.6 586120 $7.40 43.7 $7.30 693453 245.7 $7.35 696487 155.5 $7.25 724731 73.4 $7.25 729577 511.1 748933 $7.60 1 11.6 $7.25 772040 121.4 $7.30 805364 282.4 $7.30 828589 125.4 863038 $7.25 63.6 $7.25 882112 21.9 $7.25 885651 235.4 $7.30 901105 124.2 $7.25 911934 320.0 $7.35 Maintenance Staff 289183 1,966.3 $11.99 166365 (regional support) 367.4 $17.56 Note: Due to the rounding, the total cost is different from income statement amounts. All monetary values are represented in U.S. dollars.Table 4: Jack Smith's Monthly Budget Worksheet Item Jan Feb Mar Apr May Jun Jul Aug Scp Oct Nov The Total Rooms Available 3.906 3.528 3.906 3.780 3.906 3.780 3.906 3.906 3.780 3.905 3.780 3.906 45.990 Rooms Rented 2,247 2,100 2,210 2,484 2,195 2,390 2.297 2,730 2,303 1,890 2.239 2,291 27 376 Occupancy 57.9% 59 5% 56.6% 65.7% 56.2% 63 284 58.8% 69.9% 60.9%% 48 4% 59 2% 58.7% 59 5%% ADR $42.00 $10.00 $:40.00 $4.400 $12.00 $48 00 5.48.00 $50_00 $16.00 $44100 $38 00 $42.00 $13.79 RevPAR $24. 14 $23.79 $22 61 $28 89 $23.58 $30.31 $28.19 $3491 $27.99 $21 26 $22 49 $24 62 $26.07 Revenues Room Rentals $94,374 $84,000 $88400 $109,296 $92,190 $1 14,720 $1 10256 $136,500 $105,938 $83,160 $85,082 $96,222 $1,200,138 Revenue Allowance 100 100 1:40 160 160 100 1.280 Total Room Revenue $94,294 $83,920 $86, 320 $109,196 $92,090 $1 14,580 $110,096 $136,340 $105,805 $83,060 $85,002 $96,152 51,195,858 Internet Access $402 $3 76 $396 $445 $393 $428 $41 1 $489 $412 $338 $401 $410 $4,900 Vouchers 410 381 454 401 437 420 499 421 345 109 418 5,000 Laundry 50 80 200 200 200 200 100 1,310 Vending 150 150 150 240 300 60 600 600 500 300 160 150 3.900 Total Other $1.013 $959 $1.218 $1.174 $1.664 $1.787 $1.533 $1.08 $1.020 $1 028 $15.1 10 Total Revenue $95,307 $84,879 $89,319 $110/414 $93,264 $116,244 $111,727 $138,127 $107,341 $80,13 $86,022 $97,180 $1,213,968 Not : All monetary valierare represented in U.S. dollars.Table 4: Jack Smith's Monthly Budget Worksheet (continued) Item Jan Feb Mar May Jun Jul Sep Oct Total Expenses General Manager $2,400 52 400 $2 400 $2, 400 $2.400 $2.400 $2 400 $2, 400 $2,400 $2,400 $2,400 $2, 400 $26,800 Front Desk Staff 6.00 0 6 000 6 000 6.000 6000 6000 6 000 6 0 00 6000 72,0 00 Total Front Office 58 400 $8400 $8 400 $8. 400 $8,400 $8 400 $8.400 $8. 400 $8,400 $8,400 $8.400 $8. 400 $100,800 Head Housekeeper $1.583 $1,583 $1.584 $1,583 $1,583 $1.584 $1,583 $1,584 $1,583 $1,583 $ 1,584 $19.000 Housekeepers 6 695 6.183 2527 6516 6.873 6 894 5.448 6.6 70 6 853 81 8 16 Total Housekeeping $7 865 $7,350 $7,735 $8, 694 $7,683 $8,365 $8 0-40 $9,555 $8,061 $6.615 $7,837 $8, 019 $100 8 16 Maintenance Wages $1,725 $1,725 $1,725 $1,725 $1,725 $1,725 $1,725 $1,725 $1,725 $1,725 $1,725 $20,700 Regional Maintenance 265 265 265 265 265 265 265 265 265 265 265 265 3.160 Incentive Pay (staff) Bonds Expense, GM 210 210 210 210 210 210 210 210 210 21 210 2,520 Payroll Taxes 1.605 1.561 1.594 1 675 1 589 1.647 1.620 1.499 1.603 1618 19.381 Total Other Personnel $3.805 $3. 875 $3.820 $3.827 $3.818 $45.781 Gross Payroll $20,486 $19,927 $20,346 $20,288 521,029 $20,676 $22,320 $20,700 $19,130 $20,456 $20,655 $247,397 Vacation Expense $475 $475 5-475 $475 $475 $475 $475 $475 $475 $475 5-475 $5,700 Holiday Expense 135 135 135 135 135 135 135 135 135 135 135 135 1,620 Staff Incentives 35 35 35 35 35 35 6-40 Employee Relocation Employee Training 720 140 140 140 140 140 140 140 140 140 1 40 140 2,260 Workers Compensation 1,500 1,500 1.500 1.500 1.500 1,500 1,500 1.500 1.500 1,500 1500 18 000 Health Insurance 2400 2,400 2,400 2400 2400 2,400 2,400 2400 2,400 2,400 2400 28 800 Retirement Plan Contr 60 60 60 60 60 60 60 60 60 720 Group Life Insurance 56 672 Total Benefits Expense $5.381 $4.801 $4.801 SA.85G $4. 801 $58.4 12 Total Personnel Costs $25,867 $24,728 3 $25,147 526, 186 $25,144 $25,885 525,532 $27, 176 $25,501 $23,931 $25,257 $25,456 $305,809 Total Supplies $2,135 $1,995 $2,100 $2,360 $2,085 $2,271 $2,182 $2,594 $2, 185 $1,796 52,127 $2, 176 $26,007 Note: All monetary values are represented in U.S. dollars.Table 4: Jack Smith's Monthly Budget Worksheet (continued) Item Jan Feb Mar May Jun Jul Expenses (continued) Membership & Subs. $300 $300 Travel 280 280 280 280 280 280 280 280 280 280 3.360 Meals 840 Total Travel & Meals $350 $350 $3 50 $350 $350 $350 $350 $350 5350 5350 $3 50 5650 $4,500 Bad Debt Expense Cash Shortage/Excess Bank Deposit Short Exc. Credit Card Chargeback Credit Cards (40% co) 1, 144 1,019 1,072 1,325 1, 119 1,395 1,341 1,658 1,288 29005 1,0 10 1,166 14,568 Guest Vouchers 98 92 109 96 105 101 120 101 1,200 Refunded Rentals 82 100 Total Other Expense $1,324 $1,187 $1,249 $1,296 $1.587 $1.525 $1.162 $1,212 $1,350 $16,765 Other External Services 550 $50 $50 $50 $50 $50 $50 550 Total Miss. Operating $1.724 $1,587 $1 649 $1,925 $1,296 $1.987 $1,925 $2,277 $1 873 $1 562 $1 612 $2, 050 $21 868 Property Marketing $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $6 000 Building $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $1,800 Landscaping 825 825 825 825 825 825 825 825 $25 825 825 9,900 Contracts 675 675 675 675 675 675 675 675 675 675 675 675 8,100 Laundry 500 500 500 500 500 500 500 500 500 500 500 500 5 000 Rooms 200 200 200 200 200 200 200 200 200 200 200 2,400 HVAC 400 400 400 400 400 400 400 400 400 400 400 400 4.800 Pool 300 600 600 100 Electrical & Fire 350 360 360 360 360 360 360 360 360 360 360 4,320 Plumbing 275 275 275 275 275 275 275 275 275 275 275 3,300 Supplies 300 300 300 300 300 300 300 300 300 3,600 Unclassified (petty cash) 75 75 200 Total R&M $3,760 $3.760 $3.760 $3, 750 53.760 $3.860 53.760 53.760 $3,760 546,720 Note: All monetary where represented in U.S. dollars.Table 4: Jack Smith's Monthly Budget Worksheet ( continued) Item Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Total Expenses (continued) Electricity $3.500 $3 500 $3.500 $3.500 $3.500 $3 500 $3,500 $3.500 $3.500 $3,500 $3 500 $3.500 $42.000 Natural Gas 1,400 1,400 1,400 1,40 0 1,400 1,400 1,400 1,400 1,400 1,400 1,400 1,400 16,800 Water 2750 2.750 2.750 2750 2750 2.750 2.750 2750 2750 2.750 2.750 2750 33 000 Total Energy $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $7,650 $91,800 Garbage Collection $310 $310 $3 10 $310 $310 $310 $3 10 $310 $310 $310 $3 10 $310 $3,720 Sewer 1,575 1,575 1,575 1,575 1,575 1.575 1,575 1,575 1,575 1,575 1,575 1,575 18,900 Salt ( water softener) 350 350 350 350 350 350 2,100 Telephone 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000 Satellite TV Fees 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15.000 Udlity Fees 900 Total Other Utilities $4.210 $4.210 54.560 $4.210 $4.560 $4.210 $4.560 $4.210 SA. IM $4.210 TOTAL EXPENSES $5.86 $ 44.740 $45,016 $46.613 842.116 845,392 $44,1 16 $46 153 $450.824 PROFIT $19,461 540,099 541,303 $63, 474 $47,919 569,631 $65,367 $89,01 1 $61,559 $40,386 5-40,906 $51,028 $663,144 Note: All monetary values are represented in U.S. dollars
