A motel had the following annual sales and average room rate for the past five y

Question

A motel had the following annual sales and average room rate for the past five years. During this period there were no changes in the number or type of rooms and the clientele remained basically the same.

a. Compute Room Rate Index trend numbers using 100 as the base Room Rate Index for Year 1.

b. Using the Room Rate Index developed, convert the reported historic dollar revenue into current dollars.

110.00

Room Rate Index Formula:

Current Dollar Conversion Formula:

Please comment on the sales pattern. Would you consider investing in this establishment? It is important to chose a benchmark when assessing the performance of the operation. What might that benchmark be?

Revenue Room Rate Room Rate Index Current $ Year 1 $5,000,000 $250.00 100.00% Year 2 $5,200,000 $255.00 102.00% Year 3 $5,340,000 $257.00 102.80% Year 4 $5,500,000 $260.00 104.00% Year 5 $5,700,000 $275.00

110.00

Explanation / Answer

110.00 116.35

cURRENT INDEX FORMULA=(ROOM RATE INDEX*CURRENT CURRENCY $) Previous current currency rate

Room rate index formula=(Cuurent currency rate-previous currency rate)previous currency rate*100

Sales is in increasing trend which will be beneficial for the company hence adopted.

Benchmark of the company will b ewhen the company will achieve its desired profits.or achieve its break even point where no loss or no gain

Revenue Room Rate Room Rate Index Current $ room rate index Year 1 $5,000,000 $250.00 100.00% 0 0 Year 2 $5,200,000 $255.00 102.00% 104.04 2 Year 3 $5,340,000 $257.00 102.80% 103.60 0.7843 Year 4 $5,500,000 $260.00 104.00% 105.21 5.77 Year 5 $5,700,000 $275.00

110.00 116.35

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