Grand Garden is a luxury hotel with 165 suites Its regular s

Grand Garden is a luxury hotel with 165 suites. Its regular suite rate is $200 per night per suite. The hotel\'s cost per night is $125 per suite and consists of the following Variable direct labor and materials cost Fixed cost ($5,870,000/165 suites)365 days] Total cost per night per suite $ 28 97 $ 125 The hotel manager received an offer to hold the local Bikers\' Club annual meeting at the hotel in March, which is the hotel\'s low season with an occupancy rate of under 60%. The Bikers\' Club would reserve 40 suites for three nights if the hotel could offer a 60% discount, or a rate of $80 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $125. Required: Prepare an analysis of this offer for the hotel manager. Contribution margin analysis Fixed cost per night Variable cost per night Contribution margin per night per suite Number of nights Number of suites Contribution margin from special offer Should management accept the special offer?

Solution

Fixed cost per night 97 Variable cost per night 28 Contribution margin per night 52 Number of nights 3 Number of Suits 40 Contribution margin from special offer 6240 YES Special offer must be accepted