2 Please answer Problem 25. chapter 8. Hospitality industry Managerial accountin

Question

2

Please answer Problem 25. chapter 8.

Hospitality industry Managerial accounting. Eight edition but Dr Schmigall

Brent summers plans to purchase a proposed 100 room hotel fully furnished. The total cost is 8,000,000. He believes 70% of the cost can be furnished with a loan from the bank at an annual interest of 8%. The project paid occupancy is 75%. Brent requires 15% return on investment after the incorporated hotel pays 30% of its pretax income as income taxes. The estimated undistributed expenses exluding income taxes and interest expense total 800,000 annually. The estimated direct expenses of the rooms department are $15 for each room sold and $60,000 fixed for the year. Assume 365 days to a year. Assume annual miscellaneous income of $10,000.

1. Determine the average selling price per room using the Hubbart Formula.

2. If double rooms are sold at a premium of 20% over singles, what are the prices of single and double rooms? Assume a 70% double occupancy rate.

Explanation / Answer

Total Cost 8000000 intrest cost 448000 Direct Cost 1125 Direct expenses 800000 Fixed Cost 60000.00 Other income -10000 Total Cost to be covered                     9,299,125.00 Return @21.43% 15/(1.03) Revenue required                  11,291,927.49 Rate per room per day 412.49 Rate per double room per day 495

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