Question

Prepare the pro forma income statement for a two-department company A hotel operation has 120 rooms and a 100-seat restaurant. Please prepare a pro forma income statement for the next year to determine the forecasted net income. Rooms department: In the previous year of operations the occupancy rate was 70% and the average room rate was $48. The GM is forecasting the occupancy rate to increase by 5% and the average room rate is to be increased by $4. Cost of sales per room occupied is forecasted to be $8 per room. Department fixed operating expenses is estimated to be $250,000. Restaurant department: In the previous year the average check was $18, with an average seat turnover of 1.75. The GM is forecasting the average check to increase by $2 and seat turnover to remain the same. Costs of food and beverage and other variable operating expenses are expected to be 35% and 20% of revenue respectively. The fixed operating expenses is estimated to be $261,000 per year. The restaurant opens 300 days a year. Company-wide undistributed expenses & fixed charges: The indirect operating expenses and fixed charges were $300,000 and $350,000, respectively in the previous year. GM expect the indirect costs to increase by the same rate of inflation at 3.5% and no changes for fixed charges. The tax rate is expected to be 35%. 1. Estimate Rooms department's revenue and direct costs (variable + fixed) Forecasted occupancy rate = Forecasted # room sold = Forecasted ADR = Rooms Department Income Statement: Revenue Variable costs: Cost of sales Fixed operating expenses Total rooms direct Costs Rooms Department Contributory Income 2. Estimate Restaurant department's revenue and direct costs (variable + fixed) Forecasted average check = Restaurant Department Income Statement: Revenue Variable costs: Cost of sales Variable operating expense Fixed operating expense Total restaurant direct costs Restaurant Department Contributory Income 3. Find the net income of the whole company Consolidated Pro Forma income Statement: Revenue: Rooms Restaurant total revenue Direct cost: Rooms Restaurant Total direct cost: Total Contributory Income Undistributed operating expenses Fixed charges Operating income Tax Net income

Answer 1

Please find the solution in given screen shots,

Amount in $.

1) Room Departments Revenue Capacity Daily Occupancy @ 75% 90 No of Rooms Rate per Room @ 48 X 1.05 Revenue from Rooms Yearly Occupancy 32,850 50.40 1,655,640 Room Departments Direct Cost Cost of Room Sold per Room $8 Fixed Cost Direct Cost of Room 262,800 250,000 512,800 Room Departments Income Statement Revenue from Room Direct Cost of Room Contribution from Room Dept 1,655,640 512,800 1,142,840 2) Restaurant Departments Revenue Capacity Seat Sold Yearly Occupancy for 300 Days 52,500 20 1,050,000 100 No of Seats @ 1.75 Seat Turn Check per seat Revenue from Restaurants 175

Restaurant Departments Direct Cost Cost of Food & Beverage 35% on Revenue Other Variable Operating Exp 20% on Revenue Fixed Operating Exp Direct Cost of Restaurant 367,500 210,000 261,000 838,500 Restaurant Departments Income Statement Revenue from Restaurant Direct Cost of Restaurant Contribution from Restaurant Dept 1,050,000 838,500 211,500 3) Net Income of whole Company Contribution from Room Dept Contribution from Restaurant Dept Total Contribution Less: Indirect Operating Exp - 300,000 X 1.035 Less: Fixed Charge Net Income 1,142,840 211,500 1,354,340 310,500 350,000 693,840

Consolidated Pro forma Income Statement Revenue from Departments Less: Variable Cost Less: Departments Fixed Cost Contribution from Departments Less: Indirect Operating Expense of Company Less Fixed Charges of Company Net Income Room 1,655,640 262,800 250,000 1,142,840 Restaurant 1,050,000 577,500 261,000 211,500 Total 2,705,640 840,300 511,000 1,354,340 310,500 350,000 693,840

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