Four Seasons has a hotel in South Carolina. For this hotel, management expects occupancy rates to...

 

 

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Four Seasons has a hotel in South Carolina. For this hotel, management expects occupancy rates to be 95% in December, January and February; 85% in November, March and April; and 70% the rest of the year. This hotel has 325 rooms and the room rental is $250.00 per night. Of this, on average 10% is received as a deposit the month before the stay, 60% is received in the month of the stay, and 28% is collected the month after. The remaining 2% is never collected. Most of the costs of running the hotel are fixed. The variable costs are only $30.00 per occupied room, per night. Fixed salaries (including benefits) run $400,000 per month, depreciation is $350,000 a month, other fixed costs are $120,000 per month, and interest expense is $600,000 per month. Variable costs and salaries are paid in the month they are incurred, depreciation is recorded at the end of each quarter, other fixed costs and salaries are paid in the month they are incurred, and interest is paid semi- annually each June and December. Client's Concern: The client is aware that net income does not equal cash flow and wants to make sure that the business will generate enough cash to meet all of its obligations. Project Part 1: The client wants your accounting firm to prepare a monthly cash budget for this Four Seasons hotel for the entire year. For simplicity, assume that there are 30 days in each month. Project Part 2: The client wants your accounting firm to prepare a traditional income statement (profit and loss statement) using the information above. Project Part 3: A. The client wants to know: How much would the hotel's annual profit increase if occupancy increased by 5 percentage points during the off season (that is from 70% to 75%) in each month from May to October. B. The client wants to know the contribution margin. C. The client wants to know the breakeven point for the hotel. Four Seasons has a hotel in South Carolina. For this hotel, management expects occupancy rates to be 95% in December, January and February; 85% in November, March and April; and 70% the rest of the year. This hotel has 325 rooms and the room rental is $250.00 per night. Of this, on average 10% is received as a deposit the month before the stay, 60% is received in the month of the stay, and 28% is collected the month after. The remaining 2% is never collected. Most of the costs of running the hotel are fixed. The variable costs are only $30.00 per occupied room, per night. Fixed salaries (including benefits) run $400,000 per month, depreciation is $350,000 a month, other fixed costs are $120,000 per month, and interest expense is $600,000 per month. Variable costs and salaries are paid in the month they are incurred, depreciation is recorded at the end of each quarter, other fixed costs and salaries are paid in the month they are incurred, and interest is paid semi- annually each June and December. Client's Concern: The client is aware that net income does not equal cash flow and wants to make sure that the business will generate enough cash to meet all of its obligations. Project Part 1: The client wants your accounting firm to prepare a monthly cash budget for this Four Seasons hotel for the entire year. For simplicity, assume that there are 30 days in each month. Project Part 2: The client wants your accounting firm to prepare a traditional income statement (profit and loss statement) using the information above. Project Part 3: A. The client wants to know: How much would the hotel's annual profit increase if occupancy increased by 5 percentage points during the off season (that is from 70% to 75%) in each month from May to October. B. The client wants to know the contribution margin. C. The client wants to know the breakeven point for the hotel.

Answer rating: 100% (QA)

SrNo Profit In Existing situation Occupancy rate in off season is 70 Description JanFebDec MarchAprN... View the full answer