The DEF has four hotels and resorts in Karachi and Lahore. Suppose one of these hotels is a 300-room hotel. Management expects occupancy rates to be 95% in December, January and February; 85% in November, March and April and 70% rest of the year. The average room rental is Rs. 250/- per night. Of this, the average 10% is received as a deposit the month before stay, 60% is received in the month of stay and 28% is collected the month after. The remaining 2% is never collected.

Most of the costs of running the hotel is fixed. The variable costs are only 30 per occupied room per night. Fixed salaries (including benefits) run Rs. 400,000 per month, depreciation is Rs. 350,000 per month, other fixed operating costs are Rs. 120,000 per month and interest expense is Rs. 500,000 per month. Variable and salaries costs are paid in the month they are incurred, depreciation is recorded at the end of each quarter, other fixed operating costs are paid as incurred and interest is paid each June and December.

Required:

1. Prepare a monthly cash budget for this DEF hotel. For simplicity, assume that there are 30 days in each month.
2. How much hotels annual profit increase if occupancy rates increase by five percentage points each month in the off season. (That is 70% to 75% in May through October)?