Fixed Cost Variable Cost Depreciation Administrative costs $25,000 per month $40,000 per month $25,000 per month $12,000 per month Housekeeping and supplies $15 per room-night Breakfast S8 per breakfast served Happy Times Hotel offers free breakfast to guests. In June, there are an average of two breakfasts served per room-night on weeknights and four breakfasts served per room-night on weekend nights. 1. What was Happy Times Hotel's operating income or loss for the month? 2. Gina Davis estimates that if Happy Times Hotel decreases the nightly rates to $70, weeknight occu- pancy will increase to 80%. She also estimates that if the hotel increases the nightly rate on weekend nights to $100, occupancy on those nights will remain at 90%. Would this be a good move for Happy Times Hotel? Show your calculations. 3. Why would Happy Times Hotel have a $30 price difference between weeknights and weekend nights? 4. A discount travel clearinghouse has approached Happy Times Hotel with a proposal to offer last-minute deals on empty rooms on both weeknights and weekend nights. Assuming that there will be an average of three breakfasts served per night per room, what is the minimum price that Happy Times Hotel could accept on the last-minute rooms? Required
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Considerations other than cost in pricing decisions. Happy Times Hotel operates a 100-room hotel near a busy amusement park. During June, a 30-day month, Happy Times Hotel experiences a 70% occupancy rate from Monday evening through Thursday evening (weeknights). On Friday through Sunday evenings (weekend nights), however, occupancy increases to 90%. (There were 18 weeknights and 12 weekend nights in June.) Happy Times Hotel charges $80 per night for a suite. The company recently hired Gina Davis to manage the hotel to increase the hotel’s protability. The following information relates to Happy Times Hotel’s costs:
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 8 images
