Problem 13-56 Prepare Budgeted Financial Statements: Comparing Alternatives (LO 13-7) Home Suites is a chain of all-suite, extended-stay hotel properties. The chain has 21 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 75 percent, based on a 365-day year. The average room rate was $210 for a night. The basic unit of operation is the night," which is one room occupied for one night The operating income for year 1 is as follows: Home Sites Operating income Yout Sales revenue Lodging $138.000.000 Food & beverage 39,091,500 Miscellaneous 11.497500 3767640.000 Costs Labor $ 79.873,500 Food & Beverage 22.905,000 Miscellaneous 13,797.000 Management 2,509,000 Utilities, etc. 37.800.000 Depreciation 10.500,000 Marketing 16,500,000 Other costs 3.250.000 $187.224,500 Operating profit $ 144,500 In year 1, the average fixed labor cost was $400.000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and depreciation are fred for each property. The remaining costs management, marketing, and other costs) are fixed for the firm. At the beginning of year 2. HomeSuites wil open four new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 75 percent. Management has made the following additional assumptions for year 2 The average room rate will increase by 5 percent Food and beverage revenute per night are expected to decline by 20 percent with no change in the cost . The miscellaneous cost for the room is expected to increase by 25 percent, with no change in the miscellaneous revenues per room Utilities and depreciation cost per property) w forecast to remain unchanged. Management costs will increase by percent, and marketing costs will increase by 10 percent Other costs are not expected to change The managers of HomeSuites we considering different pricing strategies for year 2. Under the first strategy (High Price"), they will work to maintain an average price of $261 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 650 percent with this strategy. Under the tomative strategy High Occupancy'), they will work to increase the occupancy rate by lowering the average price. They estimate That with an average nightly rate of $174, they can achieve an occupancy rate of 85 percent. The current estimated profit is $139,623.405 Required: a. Prepare a budgeted income statement for year 2 if the High Price strategy is adopted (Round your per unit average cost calculations to 2 decimal places.) $ 0 HOMESUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit 0 $ $ b. Prepare a budgeted Income statement for year 2 if the "High Occupancy strategy is adopted. (Round your per unit average cost calculations to 2 decimal places.) $ 0 HOMESUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit $ 0 $ 0 c. Which is the correct pricing strategy for year 2. High Price Strategy High Occupancy Strategy Current Strategy