Question

Exercise 19-13 Analyzing variable cost for a special order A1 Grand Garden is a hotel with 150 suites. Its regular suite rate is $250 per night per suite. The hotel's cost per night is $140 per suite and consists of the following Variable cost $ 30 Fixed cost 110 Total cost per night per suite $140 The hotel manager receives 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 50%. The Bikers' Club would reserve 50 suites for three nights if the hotel could offer a 50% discount, or a rate of $125 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $140. Prepare an analysis of this offer for the hotel manager. Should the offer from the Bikers' Club be accepted or rejected? What is the contribution margin from accepting the offer?

Answer 1

Contribution Margin Analysis
Room rate per night	125
Variable Cost per unit	30
Contribution margin per night per suite	95
No.of nights	3
No.of suites	50
Contribution Margin from special offer	14250
Should Management accept the special offer?	Yes
The total cost for 3 nights
Variable Cost for 3 nights	4500
Fixed cost for 3 nights	330
total cost for 3 nights	4830

The fixed cost will be same for 1 suite and 50 suites..since the fixed cost does not change upto a limit.The manager

can accept the offer.