Reference no: EM132655703

De Blaze and associates develops hotels in resort locations. the company is exploring the construction of a new facility that would have significant meeting and banquet space for conventions and conferences, and sleeping rooms that average 800 square feet. The accounting department estimates that the land and building will cost $50 and $100 per square foot, respectively. Other expenses during construction expected to total 30% of land and construction cost. Initial expenditures for each room are:

sleeping room 10,000

supplies 1500

marketing 5000

• Accounting department suggested 10% to be added to the total of all preceding costs to allow for estimation errors. Construction is anticipated to take two years. The firms pricing is consistent with that of the industry leaders. Room rate is 2% of $1000 of cost. upon completion, comparable facilities are expected to charge $240 per day.

REQUIRED:

Question a. compute the total cost of a sleeping room at the new facility

Question b. Is the company`s room rate competitive? Explain

Question c. If needed, De Blaze will look for ways to cut expenditures. Briefly explain the difference between cost-plus pricing and target costing.

Question d. other than operating costs and room revenues, what else should De Blaze consider before a final decision is made about the facility?