chap problem
6-45
Hotel Rooms and Opportunity Costs The Marriott operates many hotels throughout the world. Suppose one of its Chicagc p hotels is facing difficult times because of the opening of several new competing hotels. To accommodate its flight personnel, American Airiim~s has offered Marriott a contract fortht coming year that provides a rate of $70 per night per room for a minimum of 50 rooms for 365 nighb. This contract would assure Marriott of selling 50 rooms of space nightly, even if some of the room1 are vacant on some nights. Assume zero variable costs. The Marriott manager has mixed feelings about the contract. On several peak nights during the year, the hotel could sell the same space for $150 per room.
1. Suppose the Marriott manager signs the contract. What is the opportunity cost of the 50 rooms on October 20, the night of a big convention of retailers when every nearby hotel room is occupied’ What is the opportunity cost on December 28, when only 10 of these rooms would be expected t( be rented at an average rate of $1 00?
2. If the year-round rate per room averaged $110, what percentage of occupancy of the 50 rooms in question would have to be rented to make Marriott indifferent about accepting the offer?

7-38 JS Budgeting at Intercontinental lnterc ontinf’nta! has several hotels and resorts in the South Pacific. For one of these hotels, management expects occupancy rates to be 95% in December, January, and February; 85% in November, March, and April; and 70% the rest of the year. This hotel has 300 rooms and the average: room rental is $250 per night. Of this, on average 10% is received as a deposit the month before the ilay, 60% is received in the month of the stay, and 28% is collected the month after. The remaining 1~ is never collected. Most of the costs of running the hotel are fixed. The variable costs are only $30 per occupied: room per night. Fixed salaries (including benefits) run $400,000 per month, depreciation is $350,000 1month, other fixed operating costs are $120,000 per month, and interest expense is $600,000 per month. Variable costs and salaries are paid in the month they are incurred, depreciation is recorded u the end of each quarter, other fixed operating costs are paid as incurred, and interest is paid semiannually each June and December.
I. Prepare a monthly cash budget for this Intercontinental hotel for the entire year. For simplicity, assume that there are 30 days in each month.
2. How much would the hotel’s annual profit increase if occupancy rates increased by 5% during the off-season (that is, from 70% to 75% in each of the months from May-October)?