Please fill out double check please please thank you much appreciated!!!! Grand

Question

Please fill out double check please please thank you much appreciated!!!!

Grand Garden is a luxury hotel with 160 suites. Its regular suite rate is $220 per night per suite. The hotel's cost per night is $145 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 55%. The Bikers' Club would reserve 50 suites for three nights if the hotel could offer a 55% discount, or a rate of $99 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $145. Required: Prepare an analysis of this offer for the hotel manager.

Explanation / Answer

Contribution Margin Analysis If offer not accepted If offer accepted Per Suite Total Revenue 99 14850 (50*3*99) Revenue from others 220 7066400 (160*55%*220*365) 7066400 Total 7066400 7081250 Variable Cost 44 1413280 (160*55%*44*365) 1419880 (160*55%*44*365+44*150) Contribution 5653120 5661370 The offer should be accepted due to the increase in the contribution margin

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