Question

3. The pleasure leisure hotel has 30 bedrooms. The hotel is open all year round and has a capacity of 10,950 (30 x 365) bed-nights. It is anticipated only 9,000 rooms will be taken up this year. However Duncan tours Ltd. has offered to take up the spare Capacity of 1,950 bed-nights to per bed-night. The hotel normally charges $50 a night, with the variable cost per room amounting to $15 and annual fixed costs amounting to $135,000. The following is the summary profit statement based on selling 9,000 bed nights: Per unit Total Sales $ 50 $450,000 Less: Variable costs 135,000 Fixed costs 135,000 Projected Net' profit 180,000 a) Calculate the incremental profit of loss of the company. (3 marks) b) Should the hotel take up the offer from the tour company? Give suitable advice the company. (2 marks)

Answer 1

Answer Given, Selling Prce per unit Vgrjqble Cost per unit Anougl Fixed est $ 135000, auing the the has occypahogof gooo bed.voams year company Linstead of 10I0 bed'roums The boutis cempan will bake such spqre_crpac/ly $20 pes bed night. for loss of Compaqy. Ca) Calaylqhjon of_gġnuel prwfit or Vepeiqble coit In coemental Profit/ Campany Sqles Lois or $ [C1950 X $20) - (1850A$1s) 29250) $(39000 _Iqcuemegtas Rofit fov Compary $ ® fixel Costs eggin fixed thuoughout the yearqt the paints of bed nigtsie l09sv bed night»: goo0 b nigh€ Lor 0) Alvice for tgke yp of ao offer fom touw Compuny Les Compagy shoul take up offex, becquse the Company tom such spare bel r0oms for the pevlal. It will be pisof. Of marging! saskigy priaciple. It will benelisigl fompuny will ern dn iqcmemental puotit will hque no fixed costs due to such Mareie in sale- The Compeng sheyld fghe up 9 offev of lou (ompry. :-