Question

PROBLEM 1-8. Incremental Analysis [LO 2, 3] The Riverview Hotel is a deluxe four-star estab- lishment. Late on Friday, it had 20 of its 300 rooms available when the desk clerk received a call from the Pines Hotel. The Pines Hotel made a booking error and did not have room for four guests (each of whom had a "confirmed" room). The Pines wants to send its customers to the Riverview but pay the rate the guests would have been charged at the Pines ($160 per room) rather than paying the normal rate of $260 per room at the Riverview.

Answer 1

Incremental revenue = room rent per room * no of rooms

incremental revenue =4*160 = 640

b-if it accepts the guest additional incremental cost would be all the variable expenses like snacks and serving, electricity charges and other variable expenses related to hotel service.

c- Yes incremental revenue would be greater than the incremental cost because most of the cost consist of fixed expenses or cost