Chapter 13, Problem 13.25E

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 profitability. The following information relates to Happy Times Hotel’s costs:

	Fixed Cost	Variable Cost
Depreciation	$25,000 per month
Administrative costs	$40,000 per month
Housekeeping and supplies	$25,000 per month	$15 per room-night
Breakfast	$12,000 per month	$8 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. 1. What was Happy Times Hotel’s operating income or loss for the month? Required
2. 2. Gina Davis estimates that if Happy Times Hotel decreases the nightly rates to $70, weeknight occupancy 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. 3. Why would Happy Times Hotel have a $30 price difference between weeknights and weekend nights?
4. 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?