h: 19 Homework 6 Exerclse 19-13 Varlable cost analysis for a special order LO A1
ID: 2545012 • Letter: H
Question
h: 19 Homework 6 Exerclse 19-13 Varlable cost analysis for a special order LO A1 214 ponts Grand Garden is a luxury hotei with 150 suites. its reguar suite rate is $230 per night per suite The hotei's cost per night is $155 per suite and consists of the following. variable direct labor and aterials cost Fixed cost ttsstreteelse suites) 65 days!-...... s 5e des . The hotei manager received an offer to hold the locai Bikers Club annuai meeting at the hotel in March, which is the hotei's iow Part season with an occupancy rate of unde 50%. The Bikers' Ciub woud reserve 45 suites for three nights if the hotel causa offer a 50 discount or a rate of $115 per night The hotel manager is inclined to reject the offer because the cost per suite per night is $155 Prepare an analysis of this offer for the hotel manager margin analysis 155.00 155.00 1.00 Contribution margin per night per suite Number of nights Number of suites Contribution margin from special offer Should management accept the special offer? NoExplanation / Answer
Key Facts:
1. Fixed cost of $105 is sunk cost . This cost would incur whether we accept or reject the offer.
2.The occupancy rate is already <50% , so the additional 45 rooms do not have any opportunity cost (as 75 rooms are already vacant and no booking expected) .
Considering point 1 and 2 above , the fixed cost becomes irrelevant and actual cost per unit should be $50.
By accepting the offer, the hotel would still earn $65 per night. The offer should be acepted.
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