Question

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 18 properties with an average of 220 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 70 percent, based on a 365-day year. The average room rate was $170 for a night. The basic unit of operation is the “night,” which is one room occupied for one night.

The operating income for year 1 is as follows.

HomeSuites
Operating Income
Year 1
Sales revenue
Lodging	$	172,002,600
Food & beverage		27,318,060
Miscellaneous		11,129,580
Total revenues	$	210,450,240
Costs
Labor	$	60,064,560
Food & beverage		20,235,600
Miscellaneous		13,153,140
Management		2,514,000
Utilities, etc.		36,000,000
Depreciation		11,250,000
Marketing		25,140,000
Other costs		8,014,000
Total costs	$	176,371,300
Operating profit	$	34,078,940

In year 1, the average fixed labor cost was $414,000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and other costs) are fixed for the firm.

At the beginning of year 2, HomeSuites will open two new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70 percent. Management has made the following additional assumptions for year 2.

• The average room rate will increase by 10 percent.
• Food and beverage revenues per night are expected to decline by 25 percent with no change in the cost.
• The labor cost (both the fixed per property and variable portion) is not expected to change.
• The miscellaneous cost for the room is expected to increase by 30 percent, with no change in the miscellaneous revenues per room.
• Utilities and depreciation costs (per property) are forecast to remain unchanged.
• Management costs will increase by 5 percent, and marketing costs will increase by 5 percent.
• Other costs are not expected to change.

Required:

Prepare a budgeted income statement for year 2. (Round your per unit average cost calculations to 2 decimal places.)
HOMESUITES Operating Income Year 2 Sales revenue Lodging Food & beverage Miscellaneous Total revenues Costs Labor Food & beverage Miscellaneous Management Utilities, etc. Depreciation Marketing Other costs Total costs Operating profit $

Answer 1

Answer:

HomeSuites
Operating Income
Year 2
Sales revenue
Lodging	$	21,02,25,400
Food & beverage		2,27,65,050
Miscellaneous		1,23,66,200
Total revenues	$	24,53,56,650
Costs
Labor	$	6,67,38,400
Food & beverage		2,24,84,000
Miscellaneous		1,89,98,980
Management		26,39,700
Utilities, etc.		4,00,00,000
Depreciation		1,25,00,000
Marketing		2,63,97,000
Other costs		80,14,000
Total costs	$	19,77,72,080
Operating profit	$	4,75,84,570

Working Section:

Number of Properties for year 2	20
Average number of rooms per property	220
Number of Days	365
Occupancy Percentage	70%
Number of Nights (Unit of Operation)	11,24,200.00
Average room rate for a night (Year 2)	187.00
Lodging Revenue	21,02,25,400
Total Food & Beverage Revenue Year 1	2,73,18,060
Number of Nights (Year 1)	10,11,780
Food and beverage revenues per night (Year 1)	27.00
Food and beverage revenues per night (Year 2)	20.25
Total Food & Beverage Revenue Year 2	2,27,65,050
Total Miscellaneous Revenue Year 1	1,11,29,580
Number of Nights (Year 1)	10,11,780
Miscellaneous revenues per night (Year 1)	11.00
Miscellaneous revenues per night (Year 2)	11.00
Total Food & Beverage Revenue Year 2	1,23,66,200
Total Labour Cost (Year 1)	6,00,64,560
Fixed Labour Cost	7452000
Variable Labour Cost	5,26,12,560
Number of Nights (Year 1)	10,11,780
Variable Labour Cost per Night	52.00
Fixed Labour Cost (Year 2)	82,80,000
Variable Labour Cost (Year 2)	5,84,58,400
Total Labour Cost (Year 2)	6,67,38,400
Total Food & Beverage Cost Year 1	2,02,35,600
Number of Nights (Year 1)	10,11,780
Food and beverage Costs per night (Year 1)	20.00
Food and beverage Costs per night (Year 2)	20.00
Total Food & Beverage Cost Year 2	2,24,84,000
Total Miscellaneous Cost Year 1	1,31,53,140
Number of Nights (Year 1)	10,11,780
Miscellaneous Costs per night (Year 1)	13.00
Miscellaneous Costs per night (Year 2)	16.90
Total Miscellaneous Cost Year 2	1,89,98,980
Management Cost (Increase of 5% over Year 1)	26,39,700
Total Utilities Cost for Year 1	3,60,00,000
No. of Properties in year 1	18
Per Property cost of Utility	2000000
No. of Properties in year 2	20
Total Utilities Cost for Year 2	4,00,00,000
Total Depeciation Cost for Year 1	1,12,50,000
No. of Properties in year 1	18
Per Property cost of Utility	625000
No. of Properties in year 2	20
Total Depeciation Cost for Year 2	1,25,00,000
Marketing Cost (Increase of 5% over Year 1)	2,63,97,000
Other Cost (No Change)	80,14,000