Reference no: EM131518964

Question: Mercury Hotel, a large hotel complex that operates a divisionalized management structure, is located in South East Queensland, Australia. The director of accommodation has been called into the marketing director's office. The marketing director tells the director of accommodation that he has just been approached by a Japanese tour operator who is looking to book accommodation in a South East Queensland hotel for 800 guests. All guests would stay in double rooms for one of four consecutive weeks (200 guests per week booked into 100 rooms). The four-week period falls within the hotel's quiet season. Consistent with its competitors, the hotel has never sold more than 40% of its 300 double rooms at this time of the year.

Mercury's accounting department has estimated that the full cost per double room sold per week is $300 and that the variable cost is $180. A recent analysis of past behaviour of Japanese guests indicates that in the course of a one-week stay, each guest will purchase, on average, 2 dinners and 3 breakfasts at one of the hotel's restaurants. Average contribution per dinner cover is $25. Average contribution per breakfast served is $7. The marketing director has informed the director of accommodation that the Japanese tour operator knows the Queensland hotel market well and the fact that it is the quiet season. He also believes that the tour operator will be seeking quotes from other hotels to secure a low price.