Quantic Business and Technology School Read requirements

Homework cost part B
The rooms department’s daily utility cost of a hotel is recorded
as below:
Y (Room Dept. Daily
Utility cost $)
X (Daily
Rooms sold)
371
370
389
412
388
373
368
421
354
416
371
370
389
412
388
373
368
421
354
416
70
68
73
77
74
69
68
75
69
81
72
67
71
76
72
68
68
77
67
80
Requirements:
a. Use Excel regression to find a model for estimating fixed and
variable utility costs.
b. What are the fixed and variable utility costs of the rooms
department?
c. If 86 rooms are to be sold, what is expected total utility cost?
Homework Assignment Module 3 A
1. High/Low method
Mr. Hernandez, the manager of the Texas Inn, has asked you to estimate the hotel’s repair
and maintenance expense for 2010 based on 2009 results. The hotel has 500 total rooms.
The information he has given you from selected 2009 monthly financial statements is as
follows:
Month
January
April
July
October
December
Total Repair &
Maintenance Expense
$12,800
13,800
13,000
14,000
14,000
Average Number
of Rooms Occupied
350
420
340
470
465
A. What was the variable portion of repair and maintenance expense per room per month
for 2009?
B. Using the high/low two-point method, estimate the monthly fixed repair and
maintenance expense for 2009:
C. If Mr. Hernandez projects the hotel’s occupancy to average 500 rooms/month during
2010, what is the hotel’s estimated ANNUAL repair and maintenance expense for 2010?
2. Relevant Costs problem
The Rebel Inn needs to purchase new laundry equipment. John Robinson, the new
owner, is faced with the following two alternatives (assume that the laundry equipment
has a three year life, and ignore the time value of money):
Cost of equipment
Semi-annual equipment rental
Salvage value in three years
Annual costs:
Labor
Supplies
Utilities
Interest Expense
Repairs
Buy
$20,000
–$4,000
Lease
–$3,000
—
$15,000
1,000
2,000
1,500
300
$15,000
1,000
3,000
—–
A. Which of the costs shown above are irrelevant?
Calculate the total cost of the “Buy” alternative over 3 years
Calculate the total cost of the “Lease” alternative over 3 years:
D. Which alternative do you recommend to Mr. Robinson? Why?
3. Indifference Point Calculations
The Gator Restaurant currently has a variable lease that is 6 percent of its total revenue.
An alternative approach is $120,000 per year.
A. Determine the indifference point (5 points).
B. If its annual sales are expected to be $ 3,000,000, which type of lease do you
recommend? Provide figures to support your recommendation (5 points).