Luxury Hotel is considering purchasing an existing hotel in the entertainment district. The hotel will requireLuxury to invest $2 million to purchase the hotel. The hotel will be straight line depreciated over 20 years.At full capacity, the hotel has 100 rooms and can rent up to 36,500 room-nights per year. Operating costs are asfollows:Variable cost per room per night: $20Fixed costs per year (excluding depreciation): $525,000Luxury requires an annual income that represents a return of 20% on the initial investment.RequiredA. How many rooms will need to be booker per night and per year in order to make the desired income.B. What are qualitative issues should be considered?I

The following information is given to us: Variable Cost as $20. (per room per night) Fixed Cost as…

Answered: Luxury Hotel is considering purchasing…

Marketing

20th Edition

ISBN:9780357033791

Author:Pride, William M

Publisher:Pride, William M

Chapter19: Pricing Concepts

Section: Chapter Questions

Problem 6DRQ

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Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?
Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented for one day. The hotel’s business is highly seasonal, with peaks occurring during the ski season and in the summer. Month Occupancy-Days Electrical Costs January 2,630 $ 10,783 February 3,130 $ 12,833 March 3,640 $ 13,583 April 1,090 $ 4,469 May 1,770 $ 7,257 June 1,730 $ 7,093 July 4,440 $ 14,854 August 3,860 $ 13,815 September 2,170 $ 8,897 October 1,210 $ 4,961 November 1,790 $ 7,339 December 2,930 $ 12,013 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Do not round your intermediate calculations. Round your Variable cost answer to 2 decimal places and Fixed cost element answer to nearest whole dollar amount.) What other factors in addition to…
Alar is a manager at Shoeless Joe's Sports Bar and Grill and was approached by a hockey team asking for sponsorship. Sponsorship would mean purchasing 18 jerseys for the team BUT would see the team visit the restaurant on a regular basis. • The EXPECTED RETURNS for the restaurant from these visits would be Gross Sales of $2,000 per year for an expected five years. (Assume the restaurants profit margin on food/alcohol sales is 40%, so USE NET PROFIT of $800 per year for all calculations). Further, the jerseys would have the Shoeless Joe's logo and act as advertising (a goodwill function in accounting), BUT this is not considered in the calculations. Alar remembers something about CLTV in college and wants to calculate the CLTV using different methods on ONLY the future expected business from the team ($800 per year) (ignore advertising or goodwill from the jerseys). Determine: a) The CLTV of the team for "five years" using the "Easy Method". b) The CLTV of the team using the "Simple…
Lea Ray is the revenue manager at the 200-room Hilton Garden Inn. She tracks her occupancy and ADR on a daily basis. The following data represent her hotel’s Thursday night performance for the past seven weeks. Thursday Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Occ. % 69.5 73.5 66.5 72.0 72.5 69.0 77.0 ADR $151.50 $145.95 $161.50 $178.50 $179.95 $129.95 $159.95 Using that historical data, calculate her Occupancy %, ADR, and RevPAR for these trailing periods: Note: Round each number to the nearest tenth
Kwame after his National Service and with no hope of securing a job in the formal sector has decided to run a taxi service. The following forecast has been made for the operation of a service between Abisim and Sunyani. i) Revenue totaling GH¢300 a week for 52 weeks in a year. This is net of fuel and other variable costs. ii) Tyres; four pieces for a year at GH¢120 per unit. iii) Maintenance and servicing; GH¢120 per month. iv) Salaries GH¢3,000 per year v) Insurance GH¢350 per year The net cash flow will increase at 5% per annum for the next five years due to inflation. The cost of the vehicle is estimated at GH¢28,000. The project appears quite profitable based on the NPV criteria using the Government policy rate of 26%. However the banks are offering rates far higher than the policy rate. Required: You are to calculate the break-even rate for the project.
4.) After 10 years of production, the chemical manufacturing plant has become very successful. Because of its success, a great demand for products came as many consumers wanted the company to sell them their products. To meet the demand, three alternatives were considered. Work overtime to meet demands. Annual overtime expenses are $500,000. Expand the plant to accommodate more production. Fixed annual expenses are $2,500,000. Make a contract with another company to produce additional products at a rate of $1,000,000. The cost of manufacturing products from the three alternatives are $3500, $3000 and $3250 per unit respectively. The plant sells every unit made regardless of how they were made at $15,000 per unit. The expected demand for the product is 150 units with a probability of 50% 250 units with a probability of 35% 350 units with a probability of 7.5% 400 units with a probability of 5% 500 units with a probability of 2.5%
a) For an upcoming red carpet evening, a company is selling tickets at $60 per person at a large theatre which has a capacity of 10,000 people. Each attendant is expected to buy $12 of food and merchandise at the film evening. The cost of providing the food and merchandise is estimated to be $5 per person. All other ancillary services will be provided by the theatre. Initial analysis indicates that the ancillary cost of providing food and merchandise, as well as the staff needed to handle ticket sales, may be described as a semi-variable cost. Data on these costs and tickets sold from three similar events held at the venue have been collected and are tabulated below: Tickets Sold Cost ($) 2100 6640 3824 11284 4650 13525 Use the high-low method to estimate the total cost function relating to these ancillary costs. b) The company will be renting the theatre which will host the upcoming red carpet evening. The budgeted fixed cost of both renting the theatre and paying the…
A firm’s manager must decide whether to make or buy a certain item used in the production of vending machines. Making the item would involve annual lease costs of $150,000. Cost and volume estimates are as follows Make Buy Annual fixed cost $150,000 None Variable cost/unit $ 60 $ 80 Annual volume (units) 12,000 12,000 Given these numbers, should the firm buy or make this item? There is a possibility that volume could change in the future. At what volume would the manager be indifferent between making and buying?
A food processing plant consumes 600,000 kW-hr of electrical energy annually and pays an average of P 2.00 per kW-hr. A study is being made to generate its own power to supply the plant the energy required. The power plant installed, costs P 2,000,000; annual operation and maintenance, P 800, 000; other expenses, P 100,000 per year. The life of the plant is 15 years; salvage value at the end of life is P 200,000; annual taxes and insurance 6% of first cost, and the rate of interest is 15 %. Using the sinking fund method for depreciation, determine the ROR of the power plant.
Hotel Galway is a 50 room Boutique hotel in a pop-ular city break destination in Ireland. Until recently the hotel has priced each room at $120 for bed and breakfast. On aver-age 40 rooms are occupied every weekend. The variable cost of each occupied room is $30. Following an internal review man-agement has decided to try a revenue management approach, with rooms priced at $90 for bookings up to one week early and $180 for bookings within a week of their stay. It is esti-mated the hotel will sell 28 rooms at the lower price and 14 at the higher price. Variable costs will not change. Recommendwhich approach is the most feasible.
Break-even analysis is an important tool for managing any business, including colleges and universities. Identify 3 areas where break-even analysis might be used at a university. For each area, identify the revenues, fixed costs, and variable costs.

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