Financial Report For The Sovereign Lodge Case Study Finance Essay

Abstraction

The study was prepared to work out the accounting issues of the crowned head Lodge instance survey which was proposed by the director Mr. kacheck to the proprietor of the Lodge. The director was concerned about the losingss happening during the off season that reduces the high net income earned during the season. The director has proposed to hold one wing of the Lodge unfastened during the off season to minimise the losingss occurred during the off season. He besides suggested perpetrating farther $ 4000 for advertizement to increase the tenancy rate.

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Having a swimming pool though would non impact much during the season, would increase the tenancy rate during the off season and besides would maintain them in the competitory market.

So, holding all these in head a study was prepared to cipher the expected cost and the gross expected every bit good as the expected net income for one twelvemonth.

Introduction

The Sovereign Lodge is an old, but good maintained belongings that has changed ownership several times over the old ages. It has no eating house or saloon. It is positioned as a mid-price, good quality “ finish ” resort Lodge.

Case Presentation

Answer 1 ) Mr. kacheck has proposed the following determination options to maintain the Lodge unfastened during the off season. They are as follows:

Option 1 ) To maintain the west wing of the Lodge unfastened, but no advertizement, no pool.

Option 2 ) To maintain the west wing of the Lodge unfastened, advertisement, but no pool.

Option 3 ) To maintain the west wing of the Lodge unfastened, no advertizement, but pool.

Option 4 ) To maintain the west wing of the Lodge unfastened, advertisement and pool.

Option 5 ) To maintain the west wing of the Lodge unfastened, no advertizement, but pool and bubble.

Option 6 ) To maintain the west wing of the Lodge unfastened, advertisement, pool and bubble.

Answer 2 )

( a ) Mrs. Kacheck ‘s salary 245days ( 35 hebdomads ) paid $ 24 x 5 = 120/week

35 hebdomads x $ 120/week = $ 4200

( B ) Pool 25000/5years = $ 5000

( degree Celsius ) Bubble 15000/5years = $ 3000

( vitamin D ) ( I ) Pool disbursal, if merely open off season,

and no bubble= Lifeguard ( 3×400 ) = $ 1200

Insurance & A ; Taxes 1200

Care 1800

$ 4200

( II ) Pool disbursal if opened twelvemonth unit of ammunition

with bubble = From above $ 4200

Additional Lifeguard 3600

Heating 1000

$ 8800

( vitamin E ) telephone measure ( 30 suites ) ( $ 3 per room ) = $ 90 x ( 8 months ) = $ 720

( degree Fahrenheit ) Total Utility Cost, from the instance $ 6360

less Phone Expense $ ( 1560 ) = [ ( 290×4 ) + ( 50×8 ) = $ 1,560 ]

= Electricity Expense $ 4800 ( for 9600 available suites )

For 7350 available suites = 7350/9600 x $ 4800 = $ 3,675

( g ) We pay four amahs during the season for 7,680 occupied darks ( 120x80x.8 ) which is 1920 suites per amah. Each amah cleans 16 suites ( mean ) during the hebdomad and 20 suites on the weekend. With merely 30 suites unfastened off-season and merely 40 % maximal occupancy expected-12 rooms-only one supernumerary amah is needed. The cost is $ 15/day x 240 yearss = $ 3600 ; $ 4320 with peripheries.

Option 1 ) To maintain the west wing of the Lodge unfastened, but no advertizement, no pool.

Repairs $ 2,000

Insurance $ 500

Mrs. Kacheck ‘s wage ( a ) $ 4,200

Telephone ( vitamin E ) $ 720

Electricity ( degree Fahrenheit ) $ 3,675

Maids ( g ) $ 4,320

Entire $ 15,415

Option 2 ) To maintain the west wing of the Lodge unfastened, advertisement, but no pool.

Repairs $ 2,000

Insurance $ 500

Mrs. Kacheck ‘s wage ( a ) $ 4,200

Advertisement $ 4,000

Telephone ( vitamin E ) $ 720

Electricity ( degree Fahrenheit ) $ 3,675

Maids ( g ) $ 4,320

Entire $ 19,415

Option 3 ) To maintain the west wing of the Lodge unfastened, no advertizement, but pool.

Repairs $ 2,000

Insurance $ 500

Mrs. Kacheck ‘s wage ( a ) $ 4,200

Pool dep’n ( B ) $ 5,000

Pool ( vitamin D ) ( I ) $ 4,200

Telephone ( vitamin E ) $ 720

Electricity ( degree Fahrenheit ) $ 3,675

Maids ( g ) $ 4,320

Entire $ 24,615

Option 4 ) To maintain the west wing of the Lodge unfastened, advertisement and pool.

Repairs $ 2,000

Insurance $ 500

Mrs. Kacheck ‘s wage ( a ) $ 4,200

Advertisement $ 4,000

Pool dep’n ( B ) $ 5,000

Pool ( vitamin D ) ( I ) $ 4,200

Telephone ( vitamin E ) $ 720

Electricity ( degree Fahrenheit ) $ 3,675

Maids ( g ) $ 4,320

Entire $ 28,615

Option 5 ) To maintain the west wing of the Lodge unfastened, no advertizement, but pool and bubble.

Repairs $ 2,000

Insurance $ 500

Mrs. Kacheck ‘s wage ( a ) $ 4,200

Pool dep’n ( B ) $ 5,000

Bubble dep’n ( degree Celsius ) $ 3,000

Pool ( vitamin D ) ( II ) $ 8,800

Telephone ( vitamin E ) $ 720

Electricity ( degree Fahrenheit ) $ 3,675

Maids ( g ) $ 4,320

Entire $ 32,215.

Option 6 ) To maintain the west wing of the Lodge unfastened, advertisement, pool and bubble.

Repairs $ 2,000

Insurance $ 500

Mrs. Kacheck ‘s wage ( a ) $ 4,200

Advertisement $ 4,000

Pool dep’n ( B ) $ 5,000

Bubble dep’n ( degree Celsius ) $ 3,000

Pool ( vitamin D ) ( II ) $ 8,800

Telephone ( vitamin E ) $ 720

Electricity ( degree Fahrenheit ) $ 3,675

Maids ( g ) $ 4,320

Entire $ 36,215

Answer 3 ) Assuming the tenancy rate to be 40 %

( a ) Variable Costss:

Cleaning supplies $ 1,920

Linen service $ 13,920

1/2 Misc. write off $ 3,657

$ 19,497

( B ) per occupied room per dark

19,497/ 2940 ( 245x30x40 % ) = $ 6.63

( degree Celsius ) Contribution Margin

Average gross $ 160,800 / 2940 = $ 54.7

Gross – variable cost = $ 54.7 – $ 6.63 = $ 48

( vitamin D ) Fixed cost

Entire cost – Variable cost = fixed costs

138,410 – 19,497 = 118,913

( vitamin E ) Break even = 118,913/ 48 = 2,477 room darks per dark ( /245 ) = 10 suites ( 34 % )

( I ) Gross

Single = $ 10, Double = $ 15, weighted mean = $ 14

Variable cost ( B ) = $ 6.63/ room per dark

Contribution border

Gross – variable cost = $ 14 – $ 6.63 = $ 7.37

Answer 4 ) Break-even Occupancy Ratess

Fixed cost = Total disbursals – variable cost

$ 138,410 – $ 19,497 = $ 118913

Available room yearss = 30 x 245 = 7350

15415/ 7.37 = 2091.6 2091.6/ 7350 = 28.45 %

19415/ 7.37 = 2634.3 2634.3/ 7350 = 35.84 %

24615/ 7.37 = 3339.9 3339.9/ 7350 = 45.44 %

28615/ 7.37 = 3882.6 3882.6/ 7350 = 52.82 %

32215/ 7.37 = 4371.1 4371.1/ 7350 = 59.47 %

36215/ 7.37 = 4913.8 4913.8/ 7350 = 66.85 %

Answer 5 )

In my sentiment since the expected tenancy rate is 20 % to 40 % , presuming this to be maximal possible. Option 2 is recommended. The best to accomplish the interruption even with the expected tenancy rate is option 2.

Therefore option 2 has been recommended.

Answer 6 )

option1 option2 option3 option4 option5 option6

Gross 102,900 102,900 102,900 102,900 102,900 102,900

Entire disbursals 15,415 19,415 24,615 28,615 32,215 36,215

Gross Profit 87,485 83,485 78,285 74,285 69,685 66,685

Taxes ( 48 % ) 41,993 40,073 37,577 35,656 33,449 32,008

Net Net income 45,492 43,412 40,708 38,629 36,236 34,677

Decisions and Recommendations

Answer 7 )

direction should look at the hotels in the same geographical country about the pricing that they charge and should bear down relatively. “ charge merely what the market will accept ” .

i‚· The direction has to see the value of the belongings every bit good, and the comparison of the hotel besides depends on the similarity of the merchandise.

Discounting is a method used by Management to do their Products and Services attractive to Customers. This really method may differ harmonizing to seasonality, type of Customer, Market Segment, and Type of Productaˆ¦

Pricing Techniques:

Market Planing Pricing: put a higher monetary value for the freshly introducing merchandise

Market Penetration Pricing: put a low monetary value for the new merchandise to pull more clients and more market portion

Optional merchandise pricing: these are accessary merchandise being sold with a chief merchandise

Captive merchandise pricing: puting a merchandise monetary value for which it is used with a chief merchandise

Product bundle pricing: offering bundled merchandises at a discounted monetary value

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