Question
Superior Stay Resorts provides luxurious hotel accommodations to its high-end customer base. Superior measures business volume by the total number of occupied guest room nights
Superior Stay Resorts provides luxurious hotel accommodations to its high-end customer base. Superior measures business volume by the total number of occupied guest room nights during the year. For each of the past several years, Superior's sales have been considerably less than the expected annual volume of 1,200,000 total guest room nights. Therefore, the company ends each year with significant unused capacity. Given its high-fixed cost structure, Superior's profitability hinges on increasing the number of occupied guest room nights (i.e., decreasing unused capacity) throughout the year. As a result, Superior's Controller, Jack, has decided to seek out potential special-order offers from other companies. Superior's top propertyPremier Resortsits adjacent to an expansive outdoor event spaceThe Barnyardthat hosts large festivals, music concerts, boat and RV shows, rodeos, fairs, and various other athletic competitions. Superior received an offer from Barnyard's management to rent 10,000 Premier Resort guest rooms for its December event attendees at a price of $130 per guest room. Jack was excited, noting that, "This is a great way for us to make use of one of our most premier properties!".
Integrative Exercise Relevant Analysis, Cost-Based Pricing, Cost Behavior, and Net Present Value Analysis for Superior Stay Resorts Special-Order Offer Relevant Analysis The annual costs incurred by Superior to fulfill 1,000,000 occupied guest room nights are as follows: In addition, Jack met with several of Superior's key service area managers and discovered the following additional information: - The special-order could be fulfilled without incurring any additional marketing or customer service costs. - Superior leases the Premier Resort through a multiyear contract that was renewed at the beginning of the current year. table represent 500 inspections during the year. require Superior bear the $150,000 cost of the Safety Committee's approval visit. 1. Conduct a relevant analysis of the special-order offer by calculating the following: order offer. To help develop your model, complete the following table including the details of your model inputs (use as many bullet points as necessary. a. Select the independent variables (without dollar amounts) in your model: b. If Superior were to accept the special-order offer which variable is included in your model: c. Using your variables from requirement 1 , select out your model: 2. Create a spreadsheet that contains the model inputs you included in your completed table (from Requirement 1 ). Using your spreadsheet. a. Calculate the relevant revenues associated with the special-order offer. b. Calculate the relevant costs associated with the special-order offer. $ 3. Based solely on financial factors, explain why Superior should accept or reject Barnyard's special-order offer. The relevant cost is than the relevant revenue offered by Barnyard, making the relevant (or incremental) profit of -so, might significantly decrease Superior's occupied room volume and/or room revenue from its regular high-end customers. its pricing method. Complete the following table with the details of your model (use as many bullet points as necessary). a. Select the independent variables (without dollar amounts) in your model: b. If Superior were to accept the special-order offer which variable is included in your model: c. Using your variables from Requirement 5a, write out your model: unit guest room price 7. Now create another model that calculates the relevant increase or decrease in profit associated with the special-order offer. The relevant cost incurred is the relevant revenue of that be generated from Barnyard, making the relevant (or incremental) profit of positive. Therefore, Superior accept the specia order offer if Barnyard agree to pay that results from Superior's cost-plus pricing method. Incorporating a Long-Term Horizon into the Decision Analysis - Also, if it chooses to downsize its capacity, Superior's annual property lease and insurance cost will decrease from $4,500,000 to $4,200,000. Therefore, Jack must choose between the following two alternatives: 1. Accept the special-order offer each year and earn a $500,000 relevant profit for each of the next 5 years (i.e., the ongoing special-order alternative), or 2. Reject the special-order offer and downsize as described above (i.e., the downsizing alternative). NPV b. Create a model that calculates the NPV of downsizing capacity as previously described (i.e., the downsizing alternative). g NPV Based on the NPV of requirements 9a and 9b, the alternative (i.e., Requirement 9b) appears to be the best long-term alternative for Superior to pursue because it is estimated to provide a
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