Ask Question, Ask an Expert

+1-415-315-9853

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

Dq1respond to the ethics discussion case at the end of

DQ1 Respond to the Ethics Discussion Case at the end of chapter 5 in the textbook. Dan owns a successful sports bar in downtown Providence. The state is considering legislation that would restrict the sale of alcohol in ...

Del gato clinic deposits all cash receipts on the day when

Del Gato Clinic deposits all cash receipts on the day when they are received and it makes all cash payments by check. At the close of business on June 30, 2015, its Cash account shows a(n) $14,287 debit balance. Del Gato ...

Problemmaquoketa services was formed on may 1 2017the

Problem Maquoketa Services was formed on May 1, 2017. The following transactions took place during the first month. Transactions on May 1: 1. Jay BradFord invested $40,000 cash in the company, as its sole owner . 2. Hire ...

Question 1the company you work for has a large amount of

Question 1 The company you work for has a large amount of disposable cash and very little debt on its books. The board of directors has expressed an interest in taking this money and investing in equity and debt securiti ...

Accountingbulluse the internet to research an annual report

Accounting • Use the Internet to research an annual report of a retail company. • Then, imagine you are an investor or creditor; suggest the ratios that you believe would provide an investor or creditor with the most imp ...

Write a 700- to 1050-word paper including the followingthe

Write a 700- to 1,050-word paper including the following: The purpose of accounting and financial reporting within your organization or an organization with which you are familiar. A description of the people, processes, ...

On the cash dividends become a liability of a

On the ________, cash dividends become a liability of a corporation. declaration date date of record end of the fiscal year payment date ________ are equity securities in which the investor owns 20% or more, but less tha ...

Assignmentsec 10k link Assignment SEC 10K Link:

Assignment SEC 10K Link: https://www.sec.gov/Archives/edgar/data/908255/000090825516000077/a10k12312015.htm Position: 358 Income Statement: 53 Balance Sheet: 52 Statement of Stockholders Equity: 56 Statement of Cash Flow ...

On january 1 2011 ajax corporation signed a 1000000 7

On January 1, 2011, Ajax Corporation signed a $1,000,000, 7%, 10-year mortgage note to buy a new warehouse. The note will be repaid in 10 equal annual installments of $142,378. The first payment was made on December 31, ...

Assignmentbackgroundphoenix advertising with its main

Assignment Background Phoenix Advertising, with its main headquarters in Charlotte, North Carolina, serves clients that include banks, insurance companies, and retail chains. You're the vice president of human resources ...

  • 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

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen