Accounting based assignment



Accounting based assignment

What is the proposed incremental contribution margin per occupied room/day during the off-season?

About $6.75/per room/day.

This is asking how much incremental contribution to the profit per occupied room/day during the off-season. Contribution margin is sales revenue - COGS - variable operating expenses (but before fixed operating expenses are deducted. Average revenue per occupied room/day = $13.75. The baseline is as follows:

Summer

Weekend nights in Summer

70

Weekday nights in Summer

170

Weekend Occupancy at regular rates

0%

Weekday Occupancy at regualar rates

0%

Average Occupancy

Average rate Weekday

13.75

Average rate Weekend

13.75

Weekend total rooms

0

weekday total rooms

0

Weekday Revenue

0

Weekend revenue

0

Total revenue

0

Summer days

240

Maids summer

1

Depreciation

$30,000

Property Taxes

$4,000

Insurance annual

$3,500

Repairs & Maintenance Annual

$19,204

fixed

Cleaning Supplies Summer

$ -

partially variable

Miscellaneous Variable for Summer

$ -

could get occupancy

Roms rented

$0

Telephones for Summer

$720

Electricity for summer

$3,600

Revenue

$158,400

Expenses

Salaries

Manager

$15,000

Manager's wife

$7,200

Desk Clerk

$6,240

Maids

$11,100

$39,540

Payroll Taxes

$7,908

Depreciation

$30,000

Property Taxes

$4,000

Insurance

$3,500

Repairs

$19,204

Cleaning Supplies

$1,920

x

Utilities

$10,680

x

Linen Service

$13,920

x

Interest

$21,716

Misc. Expenses

$7,314

x

Total Expenses

$159,702

Profit before taxes

($1,301)

Income taxes

($625)

Net profit

$677

At 30% occupancy, by contrast, we get the following:

Summer

Weekend nights in Summer

70

Weekday nights in Summer

170

Weekend Occupancy at regular rates

30%

Weekday Occupancy at regualar rates

30%

Average Occupancy

Average rate Weekday

13.75

Average rate Weekend

13.75

Weekend total rooms

630

weekday total rooms

1530

Weekday Revenue

21038

Weekend revenue

8663

Total revenue

29700

Summer days

240

Maids summer

1

Depreciation

$30,000

Property Taxes

$4,000

Insurance annual

$3,500

Repairs & Maintenance Annual

$19,204

fixed

Cleaning Supplies Summer

$540

partially variable

Miscellaneous Variable for Summer

$1,028.53

could get occupancy

Rooms rented

2160

Telephones for Summer

$720

Electricity for summer

$3,600

Revenue

$188,100

Expenses

Salaries

Manager

$15,000

Manager's wife

$7,200

Desk Clerk

$6,240

Maids

$11,100

$39,540

Payroll Taxes

$7,908

Depreciation

$30,000

Property Taxes

$4,000

Insurance

$3,500

Repairs

$19,204

Cleaning Supplies

$2,460

x

Utilities

$10,680

x

Linen Service

$13,920

x

Interest

$21,716

Misc. Expenses

$8,343

x

Total Expenses

$161,270

Profit before taxes

$26,830

Income taxes

$12,878

Net profit

$13,952

Therefore, profit goes up by about $14,620 when 2160 rooms are rented during the summer. The contribution margin is 14,620/2160 or approximately $6.75/per room/day.

For each alternative in the case, list the annual expenses that are incremental to that decision alternative but are not related to the room/days occupied?

Alternative: Open for summer

Annual Expenses Incremental that are not related to room days

Extra Wife expense of $4800

Extra Desk Clerk Expense of about $3400

Extra maids cost of about $4000 (assuming only 1 maid working in the summer)

Resulting increase in payroll taxes and perks of about $2500

Increased repairs of about $2000

Increased insurance of $500

Increased utilities of about $4300

Alternative: $4000 in advertising

Annual Expenses Incremental that are not related to room days

In addition to those listed above, also the $4000 in advertising

Alternative: Build a pool and keep it open year round

Annual Expenses Incremental that are not related to room days

In addition to those listed above…

$15,000 depreciation for the pool

Increased interest ...