Winter garden is a luxury hotelwith 150 suites its regular, Ask an Expert

Accounting

Winter Garden is a luxury hotelwith 150 suites. Its regular suite rate is $250 per night persuite. The hotel's cost per night is $140 per suite and consists ofthe following.

Variable direct labor and materials cost $ 30

Fixed cost [($6,022,500/150 suites) ÷ 365 days] 110

Total cost per night per suite $ 140

The hotel manager received an offerto hold the local Rotary Club annual meeting at the hotel in March,which is the hotel's low season with an occupancy rate of under50%. The Rotary Club would reserve 50 suites for three nights ifthe hotel could offer a 50% discount, or a rate of $125 per night.The hotel manager is inclined to reject the offer because the costper suite per night is $140. The manager believes that if 50 suitesare offered at the rate of $125 per night for three nights, thehotel would lose $2,250, computed as ($125 - $140) × 50suites × 3 nights.

Required:

(a) Prepare an analysis of this offerfor the hotel manager.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9797469

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