Grand Garden is a luxury hotel with 165 suites. Its regular suite rate is $210 p

Question

Grand Garden is a luxury hotel with 165 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 60%. The Bikers’ Club would reserve 45 suites for three nights if the hotel could offer a 60% discount, or a rate of $84 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $135.

Prepare an analysis of this offer for the hotel manager.

Grand Garden is a luxury hotel with 165 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.

Explanation / Answer

The Varaible Direct Labour and Material cost per night per suit = $ 39

Fixed Cost = $ 5,770,000.

The Hotel Manager received offer from Bikers club, 60% discount or a rate of $ 84 per night.

The Contribution from the offier = 45 * 3 * (84 -39) = 45 * 3 * 45 = $ 6,075

So, the Profit increased by $ 6,075 thru accepting offer from Bikers club.

So, advise the Hotel Manager, to accept the offer.

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