Thumbs up if you get it right please please, doouble check the answer! thank you
ID: 2463914 • Letter: T
Question
Thumbs up if you get it right please please, doouble check the answer! thank you soo much!!!!
Grand Garden is a luxury hotel with 160 suites. Its regular suite rate is $220 per night per suite. The hotel's cost per night is $145 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 Mareh, 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 $99 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $145. Required: Prepare an analysis of this offer for the hotel manager.Explanation / Answer
It is advisable to accept the order because the offer price of $99 is more than the variable cost of $44 per suit per night because there would be no increase in fixed cost on accepting this special order.
Now, let us prepare the analysis of the offer for manager to determine the increment of the net income after accepting this special order.
Details
Amount
Selling price
$ 99
Less: Variable cost
$ -44
Contribution margin
$ 55
Less: Fixed cost
$ -
Net income per suit per night
$ 55
Number of reserved suites
50
Number of nights
3
Net income of special offer
$ 8,250
On accepting the special order, the net income would be increased by $8,250 for 3 nights. Therefore, manager’s intension of not to accept the special offer is incorrect and this biker’s club offer must be accepted.
Details
Amount
Selling price
$ 99
Less: Variable cost
$ -44
Contribution margin
$ 55
Less: Fixed cost
$ -
Net income per suit per night
$ 55
Number of reserved suites
50
Number of nights
3
Net income of special offer
$ 8,250
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