Please see below for analysis of Skyview Manor.

a. The company is a hotel in a winter ski area, typically open from December 1 through March 31 each season. b. The hotel has no restaurant or bar. c. The hotel building consists of a large central entrance area and two wings: one to the south with views east and west (with scenic views of sunrise and sunset, respectively), and one to the west with views north and south (the north-facing rooms have views of the ski mountain; the south-facing rooms have views of the mountain village). i. The South Wing has 40 rooms with an average room rate of $240 on Friday and Saturday, and of $160 on Sunday through Thursday. ii. The West Wing has 35 rooms with an average room rate of $200 on Friday and Saturday, and of $140 on Sunday through Thursday. iii. Both wings have an average occupancy of 100% on Friday and Saturday, and of 75% on Sunday through Thursday. d. Operating results for the last season are shown in Exhibit 1. The general manager of the hotel is concerned about the off-season months which show losses each month and reduce the high profits reported during the ski season. She has suggested to the owners that to reduce the off-season losses, they should keep the South Wing of the hotel operating essentially year-round, being open Wednesday through Sunday; closed on Monday and Tuesday. She estimates the average occupancy rate for the off-season to be between 30% and 50% for the next few years. She also estimates that this off-season occupancy rate could be increased to between 60% and 80% if $50,000 in advertising were spent each year. Rates, however, would need to be reduced to $150 on Friday and Saturday, and to $120 on Sunday through Thursday. e. The general managers salary is paid over 12 months. She acts as a caretaker of the facilities during the off-season and arranges for repairs and maintenance work during that time. If the hotel were to be opened all year, there is an estimated additional $26,000 per year for repairs and maintenance. f. The housekeeping supervisor is paid $260 per day for supervising the housekeepers and helping with check-in. During the season she works 6 days per week with Mondays off. The regular desk clerk and each housekeeper are paid on a daily basis of $160 and $80, respectively, with an average of 5 days worked each week. The payroll taxes and other fringe benefits average 20% of payroll costs. g. Current depreciation expense and property taxes would not be affected by the decision to keep the South Wing open year-round, but insurance would increase by $6,500 for the year. h. During the off-season the housekeeping supervisor could handle the front desk without an additional person. i. Cleaning supplies and one-half of the miscellaneous supplies are considered a direct function of the number of rooms occupied. The other one-half of the miscellaneous supplies are fixed. j. Linen service is a direct function of the number of rooms occupied. k. The cost of utilities currently runs at 10 percent during the months the hotel is closed. When the hotel is open, utilities are considered a direct function of the number of rooms available. l. Other proposals currently on the table include the following, which are not mutually exclusive; one or the other or both would fit within the existing space of the central entrance area of the hotel building. One or the other or both could run during the current season and/or be open year-round. i. Addition of a coffee shop for an initial cost of $375,000, including equipment and renovation costs. Depreciation would be over 15 years. 1. Inventory and supplies for one month: $2,400. 2. Two additional employees at an average cost of $80 per day. 3. Estimated monthly revenues are $12,500. 4. The estimated occupancy rate during the off-season is more likely to be on the upper end of the estimates with the addition of a coffee shop. ii. Addition of a small bar for an initial cost of $450,000, including equipment and renovation costs. Depreciation would be over 15 years. 1. Inventory and supplies for one month: $4,600. 2. Licenses and permits for $2,200 per year. 3. Two additional employees at an average cost of $120 per day. 4. Estimated monthly revenues are $32,000 5. The estimated occupancy rate during the off-season is more likely to be on the upper end of the estimates with the addition of a small bar.

Income Statement for the Fiscal Year Ended 3/31 Revenues $1,301,725 Expenses General Manager Salary $195,000 Housekeeping Supervisor Wages 27,300 Desk Clerk Wages 14,000 Housekeepers (4) Wages 28,000 Payroll Taxes and Fringe Benefits 52,860 Depreciation (avg. 15-year life) 30,000 Property Taxes 48,000 Insurance 38,500 Repairs and Maintenance 223,652 Cleaning Supplies 24,960 Utilities 82,680 Linen Service 63,458 Interest on Mortgage 162,308 Miscellaneous 88,082 Total Expenses $1,078,800 Income before Income Taxes 222,925 Income Tax Expense 62,419 Net Income $160,506

According to the information listed above, determine the following: a. On average, how many rooms must be rented each night during the ski season in order for the hotel to break even?

b. If room rates were raised an average of 10%, but average occupancy dropped to 95% on Fridays and Saturdays, and 65% on Sundays through Thursdays, what is the revised income before taxes per season, per Exhibit 1?