Question 10
A local hotel chain is considering dropping one of their hotels called the Hothi Lodge.
Management is concerned about the current quarters loss.
If the hotel is dropped:
The hotel manager currently working at the Hothi Lodge will have to move to another hotel as they are a long-term employee who is currently earning an annual salary of $75,000.
Three-quarters of the insurance is directly related to the Hothi lodge. The remaining insurance would be unaffected as it relates to the hotel chains overall liability.
90% of the advertising costs will be discontinued.
The accountant has prepared the following information on the Hothi Lodge.
Sales						$ 2,400,000
Less: variable expenses						(1,000,000)
Contribution margin						1,400,000
Less: fixed costs
Wages					1,000,000
Insurance					40,000
Advertising					500,000	(1,540,000)
Net operating income (loss)						$ (140,000)
Required -
a) Prepare a new contribution margin statement with the remining revenues/expenses if the Hothi Lodge is dropped.