BIZ201 Accounting for Decision Making Assessment 4

TASK 4

The GM has suggested Crystal Hotel to run a promotion to boost the occupancy rates of the hotel. They aim to charge $120 per person for one night’s accommodation including buffet breakfast. The variable cost per person is $35 that includes food, cleaning and utilities. Fixed costs are $40,000 per year that include council rates rate, water rates and land taxes. There are 100 rooms in the hotel and the hotel operates all year round. In general, without any promotions, the normal occupancy rates are 70% throughout the year.
REQUIRED
They have asked for your expertise to carry out a CVP analysis for this promotion. Calculate
the following:
1. The contribution margin per service (a unit of service is one night’s accommodation for one guest).
2. The contribution margin ratio.
3. The annual break-even point in number of services and in dollars of service revenue.
4. The number of services required to earn a target net profit of $150,000 for the year (ignore income taxes).
5. Analysis the importance of CVP analysis and comment on effectiveness of this promotion based on your calculations.
6. Some of the marketing team suggest that the room charge for the promotion should be raised to $150. Comment on whether this should be done and what effect it will have on reaching the target profit.