HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain ha

Question

HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 22 properties with an average of 150 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 80 percent, based on a 365-day year. The average room rate was $215 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:

In year 1, the average fixed labor cost was $418,000 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 80 percent. Management has made the following additional assumptions for year 2:

The average room rate will increase by 5 percent.

Food and beverage revenues per night are expected to decline by 20 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 25 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 8 percent, and marketing costs will increase by 10 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 1 Sales revenue Lodging $ 138,150,000 Food & beverage 26,980,800 Miscellaneous 14,454,000 Total revenues $ 179,584,800 Costs Labor $ 57,376,000 Food & beverage 23,126,400 Miscellaneous 16,381,200 Management 2,518,000 Utilities, etc. 44,000,000 Depreciation 11,000,000 Marketing 15,400,000 Other costs 5,000,000 Total costs $ 174,801,600 Operating profit $ 4,783,200

Explanation / Answer

Year 1 Year 2 1 No. of Property                 22 24 2 No. of Room / Property              150 150 3 Total Room (1 x 2)              3,300      3,600 4 Total Nights               365           365 5 Total Room Nights (3 x 4)         12,04,500     13,14,000 6 Occupancy 80.00% 80.00% 7 Occupied Nights (5 x 6)    9,63,600 10,51,200 Labour Cost Amount Total Cost for Year 1 5,73,76,000 Fixed Cost Per Property 4,18,000 No. of Property     22 Total Fixed Cost 91,96,000 Total Variable Cost 4,81,80,000 Total room Nights 9,63,600 Variable Cost / Night 50 HomeSuites Operating Income Particular Year 1 Calculation Budgeted Year 2 Sales revenue Lodging 13,81,50,000 (215 + 105%) x 1,051,200 23,73,08,400 Food & beverage 2,69,80,800 (26,980,800 / 963,600) x 80% x 1,051,200 2,35,46,880 Miscellaneous 1,44,54,000 (14,454,000 / 963,600) x 1,051,200 1,57,68,000 Total revenues 17,95,84,800 27,66,23,280 Costs Labor - Fixed 5,73,76,000 418,000 / property    1,00,32,000 Labor - Variable 50 x 1,051,200 5,25,60,000 Food & beverage 2,31,26,400 (23,126,400 / 963,600) x 1,051,200 2,52,28,800 Miscellaneous 1,63,81,200 (16,381,200 / 963,600) x 125% x 1,051,200    2,23,38,000 Management 25,18,000 2,518,000 x 108% 27,19,440 Utilities, etc. 4,40,00,000 (44,000,000) / 22 x 24 4,80,00,000 Depreciation 1,10,00,000 (11,000,000) / 22 x 24    1,20,00,000 Marketing 1,54,00,000 15,400,000 x 110% 1,69,40,000 Other costs 50,00,000 NO CHANGE     50,00,000 Total costs 17,48,01,600 19,48,18,240 Operating profit 47,83,200 8,18,05,040

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