Question: Question 10 A local hotel chain is considering dropping one of their hotels called the Hothi Lodge. Management is concerned about the current quarters loss.
| Question 10 | |||||||||
| A local hotel chain is considering dropping one of their hotels called the Hothi Lodge. | |||||||||
| Management is concerned about the current quarters loss. | |||||||||
| If the hotel is dropped: | |||||||||
| The hotel manager currently working at the Hothi Lodge will have to move to another hotel as they are a long-term employee who is currently earning an annual salary of $75,000. | |||||||||
| Three-quarters of the insurance is directly related to the Hothi lodge. The remaining insurance would be unaffected as it relates to the hotel chains overall liability. | |||||||||
| 90% of the advertising costs will be discontinued. | |||||||||
| The accountant has prepared the following information on the Hothi Lodge. | |||||||||
| Sales | $ 2,400,000 | ||||||||
| Less: variable expenses | (1,000,000) | ||||||||
| Contribution margin | 1,400,000 | ||||||||
| Less: fixed costs | |||||||||
| Wages | 1,000,000 | ||||||||
| Insurance | 40,000 | ||||||||
| Advertising | 500,000 | (1,540,000) | |||||||
| Net operating income (loss) | $ (140,000) | ||||||||
| Required - | |||||||||
| a) Prepare a new contribution margin statement with the remining revenues/expenses if the Hothi Lodge is dropped. | |||||||||
| b) Should the Hothi Lodge be dropped? | |||||||||
| | |||||||||
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