Grand Garden is a luxury hotel with 150 suites. Its regular suite rate is $210 p

Question

Grand Garden is a luxury hotel with 150 suites. Its regular suite rate is $210 per night per suite. The hotel’s cost per night is $135 per suite and consists of the following.

The hotel manager received 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 55%. The Bikers’ Club would reserve 50 suites for three nights if the hotel could offer a 55% discount, or a rate of $94 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $135.

Required:

Prepare an analysis of this offer for the hotel manager.

ALL the numbers are wrong except for # of nights and # of suites.

Variable direct labor and materials cost $ 28 Fixed cost [($5,870,000/150 suites) ÷ 365 days] 107 Total cost per night per suite $ 135

Explanation / Answer

Contribution margin analysis Selling rate per night per suite 94 Variable cost per night per suite 28 Contribution margin per night per suite 66 Number of nights 3 Number of suites 150 Contribution margin from special offer 9900 Should management accept the special offer? Yes

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