The Skyview Manor is an old, but well-maintained property that has changed ownership several times over the years. It has no restaurant or bar. It is positioned as a mid-price, good quality “destination” resort hotel. The Skyview Manor is open only during the skiing season. It opens on December 2 and closes the last day of March. The ski mountain that it serves operates on a permit from the state which allows only 120 days of operation per year.
Each of the 50 rooms in the east wing rents for $15 for single occupancy or $20 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 $20 and $25 for single or double occupancy, respectively. The average occupancy rate during the season is about 80% (typically, the Hotel is full on weekends and averages 50 to 60 rooms occupied on week nights).
The ratio of single versus double occupancy is 2:8; on average.
Operating results for the last fiscal year are shown in Exhibit 1. Mr. Kachack, the manager of the hotel, is concerned about the off-season months, which show losses each month and reduce the high profits reported during the season. He has suggested to the owners, who acquired this hotel only at the end of the 1961 season that to reduce the off-season losses, they should agree to keep the west wing of the hotel operating year-round. He estimates the average occupancy rate for the off-season to be between 20% and 40% for the next few years.
The Essay on Four Seasons Hotels
The Four Seasons Company, as per current financial, seems very profitable and the earnings per share are increasing each year. From 1997 to 1998 EPS increased by 66% and from 1998 to 1999 it increased by 22%, actually from 1997 to 1999, the value has more than doubled. The main reason for the increase seems to be a total net earnings increase of 112% in two years. (See Exhibit # 1 for figures). ...
Kacheck estimates that with careful attention to the off-season clientele a 40% occupancy rate for the 30 rooms during the off-season would be much more likely if the owners would commit $4,000 for advertising each year ($500 for each of eight months).
There is no evidence to indicate that the 2:8 ratio of singles versus doubles would be different during the remainder of the year or in the future. Rates, however, would have to be drastically reduced. Present plans are to reduce them to $10 and $15 for singles and doubles. The manager’s salary is paid over 12 months.
He 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 $2,000 per year for repair and maintenance. Mrs. Kacheck is paid $20 a day for supervising the maids and helping with check-in. During the season, she works seven days a week. The regular desk clerk and each maid are paid on a daily basis at the rate of $24 and $15 respectively. The payroll taxes and other fringe benefits are about 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 $500 for the year. During the off-season, it is estimated that Mr. and Mrs. Kacheck could handle the front desk without an additional person. Mrs. Kacheck would, however, be paid for five days a week. 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 and the cost also depends on the number or rooms occupied, but is twice as much, on average, for double occupancy as for single occupancy. The utilities include two items: telephone and electricity. There is no electricity expense with the motel closed. With the motel operating, electricity expense is a function of the number of rooms available to the public. Rooms must either be heated or air-conditioned. The telephone bills for each of the four seasonal months were as follows: 80 Telephones @ $3. 00/month$240 Basic Service Charge 50 290 During the off-season, only the basic service charge is paid. The monthly charge of $3 is applicable only to active telephones. An additional aspect of Mr. Kacheck’s proposal is that a covered and heated swimming pool be added to the hotel. Mr. Kacheck believes that this would increase the probability that the off-season occupancy rate would be above 30%. Precise estimates are impossible. It is felt that although the winter occupancy rate will not be greatly affected by adding an indoor pool, eventually such a pool will have to be built to stay even with the competition.
The Essay on Working Hard Season Summer Year
1... 2... 3... 4... 5. I had to get stronger before the next basketball season at La Puente High School. I was pushing myself hard when it came to lifting weights and running. I thought I could catch up with all the time I missed during the last six weeks of last year. I was out of the end of the season last year from a torn muscle in my hip. I knew I was weak and out of shape compared to the ...
The cost of such a pool is estimated to be $40,000. This amount could be depreciated over five years with no salvage value ($15,000 of the $40,000 is for a plastic bubble and the heating units, which would be used nine months of the year).
The only other costs associated with the swimming pool are $400 per month for a lifeguard, required by law during the busy hours; additional insurance and taxes, estimated to be $1,200; heating cost of $1,000; and a yearly maintenance cost of $1,800.
If the pool is covered, a guard is needed for 12 months. If it is not covered, a guard is needed only for three summer months (from June 15 to September 15, the warmest period of the year), and there would be no heating expense. EXHIBIT 1 Skyview Manor Operating Statement, For the Fiscal Year ended 3/31/62 Revenues$160,800 Expenses Salaries Manager$15,000 Manager’s Wife2,400 Desk Clerk2,880 Maids (four) 7,200 $27,480 Payroll Taxes and Fringe Benefits5,496 Depreciation (15 year life)30,000
Property Taxes4,000 Insurance3,000 Repairs and Maintenance17,204 Cleaning Supplies1,920 Utilities6,360 Linen Service13,920 Interest on Mortgage (5% interest rate)21,716 Miscellaneous Expenses7,314 Total Expenses138,410 Profit before Federal Income Taxes$22,390 Federal Income Taxes (48%) 10,747 Net Profit$11,643 ASSIGNMENT QUESTIONS 1. On average, how many rooms must be rented each night in season for the hotel to breakeven? 2. The hotel is full on weekends in the ski season.
The Essay on Petersan Tax
In order to properly prepare a tax return, there should be a complete list of the correct documentation in order to facilitate In this case Harold and Sarah Petersan; the forms will be a varied depending on their information. Harold and Sarah Petersan is a married couple living in California, with one dependant. Both husband and wife work outside the home and the dependant received child care ...
If all room rates were raised $5 on weekend nights, but occupancy fell to 72 rooms instead of 80, what is the revised profit before taxes for the year, per Exhibit 1? 3. What is the proposed incremental contribution margin per occupied room/day during the off-season? 4. 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. 5. For each decision alternative calculate the occupancy rate necessary to break even on the incremental annual expenses? 6. What alternative do you recommend? Why?
