Woodview Lodge is a premium, all-suite lodge in the Appalachian Mountains. The lodge has 200 rooms. In its first year of operations (2019), its occupancy rate (number of rooms filled divided by the number of rooms available) was 70%, based on a 365-day year. The average room rate was $220 per night. The basic unit of operation is the night. Which is one room occupied for one night.

Operating income for 2019 is as follows:

Woodview Lodge Income Statement For the year Ended 12/31/19
Revenue:
Lodging	$11,242,000
Food and Beverage	2,162,500
Miscellaneous (@ $15 per night)	765,000
Total Revenue	$14,169,500
Costs:
Labor	$3,597,000
Food and Beverage	1,470,000
Miscellaneous	918,000
Management	212,000
Utilities	3,053,000
Depreciation	854,000
Marketing	2,023,000
Other costs	640,000
Total costs	$12,767,000
Net operating income	$ 1,402,500

During 2019, $450,000 of labor was fixed; the remainder varied with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. The remaining costs are fixed.

At the beginning of 2020, Woodview plans to open a second lodge with the same number of rooms. The occupancy rate is expected to remain the same at 70%. Management has made the following assumptions for 2020:

• Average room rate will increase by 5%

• Food and beverage revenues are variable with respect to the number of nights and are expected to

  decline by 10%. Food and beverage costs are variable with respect to the number of nights.

• The variable labor rate will not change; however, variable labor costs are expected to increase in

  proportion to the increase in the number of nights; fixed labor costs are expected to increase 25%.

• The miscellaneous cost is variable with respect to the number of nights and is expected to increase by 40%. Miscellaneous revenue is variable with respect to the number of nights.

• Total utilities will increase 95%. Total depreciation will increase 90%. Total management costs will increase 38%. Total marketing costs will increase 12%. Other costs are not expected to change.

  PART A: Prepare a budgeted income statement for 2020 (round all unit variable costs to the nearest dollar).

PART B: After reviewing the budgeted income statement for 2020, management is considering changing to one of the following two different pricing strategies:

High Price Strategy: Increase the average price per room to $245 per night. This will reduce demand, with estimated occupancy falling from 70% to 60%.

High Occupancy Strategy: Decrease the average price per room to $205 per night. This will increase the occupancy rate from 70% to 80%.

All other revenues and variable costs will remain the same with respect to the number of nights. Other costs will not change.

REQUIRED:

(1) Prepare a budgeted income statement if the High Price Strategy is adopted. (2) Prepare a budgeted income if the High Occupancy Strategy is adopted. (3) Make a pricing recommendation to management. Explain your reasons. (Note: You have three

strategies: High Price strategy, High Occupancy strategy, and the Current strategy)