HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 18 properties with an average of 220 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 70 percent, based on a 365-day year. The average room rate was $170 for a night. The basic unit of operation is the \"night, which is one room occupied for one night. The operating income for year 1 is as follows: $138,110,000 Food & 557.640 60,064 560 13.153 140 Food & beverage 25,140,000 Operating prott In year 1, the average fixed labor cost was $414,000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and other costs) are fixed for the firm. At the beginning of year 2, HomeSuites will open two new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70 percent. Management has made the following additional assumptions for year 2: The average room rate will increase by 10 percent. e Food and beverage revenues per night are expected to decline by 25 percent with no change in the cost. The labor cost (both the fixed per property and variable portion) is not expected to change . The miscellaneous cost for the room is expected to increase by 30 percent, with no change in the miscellaneous revenues per room. . Utilities and depreciation costs (per property) are forecast to remain unchanged e Management costs will increase by 5 percent, and marketing costs will increase by 5 percent. Other costs are not expected to change The managers of HomeSuites are considering different pricing strategies for year 2. Under the first strategy (High Price\"), they will work to maintain an average price of $238 per night. They realize that this will reduce demand and estimate that the occupancy rate will fall to 60.0 percent with this strategy. Under the alternative strategy (\"High Occupancy\"), they will work to increase the occupancy rate by lowering the average price. They estimate that with an average nightly rate of $164 they can achieve an occupancy rate of 80 percent. The current estimated profit is $47,584,570
Budgeted Income Statement (High Price strategy)
Home suites operating income 2nd year
Sales Revenue:-
lodging. 229,336,800
Food and beverages. 22,765,000
miscellenous. 12,366,155.
Total Revenue. = 264,467,955
Cost:-
labour. 66,738,333
Food and beverages. 22,484,000
miscellaneous. 18,998,980
management. 2,639,700
Utilities and etc. 40,000,000
Depreciation. 12,500,000
Marketing. 26,397,000
Other cost. 8,014,000
Total cost. = 197,772,013
operating profit. =66,695,942
B.on the basis of occupancy rate:-
Sales Revenue:-
lodging. 210,707,200
Food and beverages. 40,471,111
Miscellenous . 16,488,207
Total revenu. =267,666,518
Cost. :-
Labour. 78,772,503
Food and beverages. 29,978,667
Miscellaneous. 25,331,913
Management . 2,639,700
Utilities. 40,000,000
Depreciation. 12,500,000
Marketing. 26 397,000
Other cost. 8 014,000
Total cost. = 223,633,783
Operating profit. =44,032,735
C.high pricr strtegy is better for second year as operating profit increases.
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