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![Grand Garden is a luxury hotel with 165 suites. Its regular suite rate is $210 per night per suite. The hotels cost per night is $135 per suite and consists of the following $ 36 Variable direct labor and materials cost Fixed cost [($5,970,000/165 suites)+365 days] Total cost per night per suite $ 135 The hotel manager received an offer to hold the local Bikers Club annual meeting at the hotel in March, which is the hotels low season with an occupancy rate of under 50%. The Bikers Club would reserve 45 suites for three nights if the hotel could offer a 50% discount, or a rate of $105 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $135. Required: Prepare an analysis of this offer for the hotel manager. Contribution margin analysis](https://media.cheggcdn.com/media%2F942%2F942e4825-bea5-4882-92a9-ef2f570e0c63%2Fimage)
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 50%. The Bikers’ Club would reserve 45 suites for three nights if the hotel could offer a 50% discount, or a rate of $105 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.
Expert Answer
| Contribution margin analysis | ||||||||
| Revenue (45*105*3) | 14175 | |||||||
| Variable cost (45*36*3) | 4860 | |||||||
| Contribution margin | 9315 | |||||||
| the fixed cost will no affect the decision since it is sunk cost | ||||||||
| The accepting of offer will lead to increase in net income of $9,315 | ||||||||
