Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Accounting Basics Expert

problem:

Mountain Hotels (MH) owns twenty hotels in Europe. The company specializes in hotels situated in hills and mountains so as to specialize in skiing holidays in the winter months and walkers outside this period. The hotels are comfortable but not luxurious.

AviemoreHeights (AH) was acquired two years ago to provide a presence in the UK. The hotel is an old, but well maintained property that has changed ownership several times over the years. It has always been positioned as a mid-price, good quality "destination" resort that is open during the skiing season. It opens on the first day of December and closes 120 days later as the weather conditions in the Cairngorms are unsuitable for skiing outside this period.. Each of the 50 rooms in the east wing rents for £75 for single occupancy or £100 for double occupancy. The west wing of the hotel has 30 rooms, all of which have spectacular views of the skiing slopes, the mountains, and the village. Rooms in this wing rent for £100 for single occupancy and £125 for double occupancy. The average occupancy rate based on both wings during the season is about 80% (typically, the AH is full on weekends and averages 50 to 60 rooms occupied on week day nights.) The ratio of single versus double occupancy is on average 2:8.AH does not have a restaurant or bar instead referring guests to the hotel across the road. However, AH does provide a continental breakfast, which is included in the room rate.

Operating results for the last fiscal year 2011 are shown in Table 1, MH is concerned about the performance of the hotel and believes that there is an opportunity to cater for walkers out of season as is the case with other hotels in the group.MH suggests to the manager,MrMcTavish, that to reduce the off-season losses, they should  keep the west wing of the hotel operating year-round. After preliminary research, MrMcTavish estimates that the hotel could achieve an average occupancy rate for this wing in the off-season period of between 30% and 40% without promotion.MrMcTavishalso estimates that if the owners would commit £60,000 annually for an advertising campaign an occupancy rate for the 30 rooms of between 50% and 60% during the off-season would be guaranteed. There is no evidence to indicate that the 2:8 ratio of single versus doubles would be different during the off season or in the future. Rates, however, would have to be drastically reduced as the clientele would be principally walkers. Present plans are to reduce them to £45 and £70 for singles and doubles respectively.

The salary of the manager is £50,000 per annum. The manager acts as a caretaker of the facilities during the off-season and also contracts most of the repair and maintenance work during that time. Using the west wing would not interfere with this work, but would cause an estimated additional £40,000 per year for repair and maintenance work. Mrs. McTavish is paid £50 a day for preparing and delivering breakfasts, supervising the two maids and helping with check-ins. During the season, she works 7 days a week. The regular desk clerk and each maid, who also work 7 days a week during the season, are paid on a daily basis at the rate of £50 and £40 respectively. National insurance and benefits for Mr and MrsMcTavish and the staff average 20% of the payroll. Although depreciation and property taxes would not be affected by the decision to keep the west wing open, insurance would increase by £20,000 for the year. During the off-season, it is estimated that Mr. and Mrs.McTavish could handle the front desk and maid’s work without an additional person if occupancy was up to 30% but over this level and up to 50% a half-time maid would be required to service the rooms for seven days per week and at above an occupancy rate of50% a full-time maid would be required. Mrs. McTavish would continue to be paid for 7 days a week except for the period when agency staff were provided. An agency manager and deputy would be bought in for 50 days throughout the period to give Mr and MrsMcTavish a break at a cost of £400 per day. The cleaning supplies and half of the miscellaneous expenses (room supplies) are considered a direct function of the number of rooms occupied. The other half of the miscellaneous expenses are fixed and would not change with 12 month operation. Linen is rented from a supply house at an average cost of £2.50 per guest per day. Rooms must either be heated or air-conditioned. The electricity charge in the income statement reflects the annual expenditure on public spaces in the (lounge, entrance hall and corridors) and in preventing rooms suffering from damage through excessive cold or heat. With the full year operating, there is an additional electricity expense based on room occupancy and estimated at £4 per day irrespective of whether there is single or double occupancy. The telephone system is supplied by a private exchange company. Apart from the annual service agreement there is a monthly rental cost for each active phone of £10. If a wing is open a phone will need to be active in each room, thus, in the season with 80 rooms active the bill is £800 per month. Each phone on average makes a profit £1.20 per day irrespective of whether the room is double or single occupancy.  The cost of the continental breakfast cost is £3 per guest.

1398_aviemore heights.jpg

problem: required

Produce a REPORT for MH that addresses the following issues:

1) find out the contribution per occupied single room and per occupied double room and the breakeven occupancy % of the off -season proposal without advertising.

2) Advise the Mountain Hotels on whether the proposal of promotional expenditure to raise the occupancy rate is worthwhile and the break-even occupancy rate for this alternative proposal.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M9270

Have any Question? 


Related Questions in Accounting Basics

Question - shelby has net investment income of 16790 and

Question - Shelby has net investment income of $16,790 and wage income of $72,000. She paid investment interest expense of $17,300. What is Shelby's deduction for investment interest expense?

Question - pattys party planners had 1500 of supplies on

Question - Patty's Party Planners had $1,500 of supplies on hand on January 1 2017. During the year, they purchased $30,850 of supplies with cash. On December 31, 2017, they had $4,220 of supplies on hand. Patty's Party ...

Question - kon corp has outstanding accounts receivable

Question - Kon Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful ...

Question - bob smith borrowed 200000 on january 1 2015 the

Question - Bob Smith borrowed $200,000 on January 1, 2015. The interest rate of 8% is compounded semiannually to be repaid January 1, 2025. To repay this Bob wants to start making five equal annual deposits into fund tha ...

Question - if you earned an income of 36500 in wages and

Question - If you earned an income of $36,500 in wages and other contractual income of $42,600 working under your own ABN, making a net profit of $38,500, what would be your total assessable income?

Question in this case management is presented with several

Question: In this case, management is presented with several decision options. For this assignment, you are required to provide a two to three single-spaced written memo evaluating options and providing recommendations. ...

Exercise - evaluation of purchase options sosa excavating

Exercise - Evaluation of Purchase Options Sosa Excavating Inc. is purchasing a bulldozer. The equipment has a price of $00,000. The manufacturer has offered a payment plan that would allow Amos to make 10 equal annual pa ...

Question - grouper inc issues 2085900 of 9 bonds due in 12

Question - Grouper Inc. issues $2,085,900 of 9% bonds due in 12 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 10%. What amount will Grouper receive when it issu ...

Question - as the senior accountant you had just prepared

Question - As the senior accountant you had just prepared & posted the journal entry that closed the revenue accounts to the income summary account. Suddenly you noticed that your bookkeeper made a tragic error in record ...

Question - white corporation is a calendar-year taxpayer

Question - White Corporation is a calendar-year taxpayer. Wilhelmina owns all of its stock. Her basis for the stock is $25,000. On March 1 of the current year (not a leap year), White Corporation distributes $60,000 to W ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As