Reference no: EM132562105

Executive Suites operates a 100-suite hotel in a busy business park. During April, a 30-day month, Executive Suites experienced a 90% occupancy rate from Monday evening through Thursday evening (weeknights), with business travelers making up virtually all of its guests. On Friday through Sunday evenings (weekend nights), however, occupancy dwindled to 20%. Guests on these nights were all leisure travelers. (There were 18 weeknights and 12 weekend nights in April.) Executive Suites charges $68 per night for a suite. Fran Jackson has recently been hired to manage the hotel, and is trying to devise a way to increase the hotel's profitability.

The following information relates to Executive Suites' costs:

                                                         Fixed Cost                           Variable Cost

Depreciation                               $20,000 per month

Administrative costs                       $35,000 per month

Housekeeping and supplies                    $12,000 per month                $25 per room night

Breakfast                                            $ 5,000 per month             $5 per breakfast served

Required

Question 1. Calculate the average cost per guest night for April. What was Executive Suites' operating income or loss for the month?

Question 2. Fran Jackson estimates that if Executive Suites increases the nightly rates to $80, weeknight occupancy will only decline to 85%. She also estimates that if the hotel reduces the nightly rate on weekend nights to $50, occupancy on those nights will increase to 50%. Would this be a good move for Executive Suites? Show your calculations.

Question 3. Why would the $30 price difference per night be tolerated by the weeknight guests?

Question 4. A discount travel clearing-house has approached Executive Suites with a proposal to offer last-minute deals on empty rooms on both weeknights and weekend nights. Assuming that there will be an average of two breakfasts served per night per room, what is the minimum price that Executive Suites could accept on the last-minute rooms?