| |
Advise management on whether the hotel should remain open or closed during the off-season. You should justify your recommendation
The question can be approached in two ways
- Calculate the profit of the hotel if it closed during the off-season and compare this to the profit if the company stayed open all year round.
- Focus on the incremental changes to costs and revenues based on closing the hotel in the off-season and base the decision on whether the incremental benefits exceed the incremental costs
Both approaches are shown below.
|
|
|
Approach 1 |
|
Approach 2 |
|
|
|
Open Season only |
Open 12 months |
|
Incremental costs and revenues |
|
|
|
€ |
|
€ |
|
€ |
Sales |
|
|
500,365 |
|
588,815 |
|
88,450 |
|
|
|
|
|
|
|
|
Less variable costs |
|
|
|
|
|
|
|
COGS |
|
210,153.3 |
|
247,302.3 |
|
37,149 |
|
W & S |
|
93,500 |
|
104,700 |
|
11,200 |
|
Caretakers wages |
10,000 |
|
|
|
-10,000 |
|
L H P |
|
7,850 |
|
13,528 |
|
5,678 |
|
R and M |
|
6,670 |
|
8,290 |
|
1,620 |
|
Advertising |
2,468 |
|
3,924 |
|
1,456 |
|
Staff meals |
6,800 |
|
11,100 |
|
4,300 |
|
Telephone |
|
8,870 |
|
11,450 |
|
2,580 |
|
Sundry expenses |
2,500 |
|
4,500 |
|
2,000 |
|
|
|
348,811 |
|
404,794 |
|
55,983 |
|
|
|
|
|
|
|
|
Contribution |
|
151,554 |
|
184,021 |
|
32,467 |
The hotel is €28,467 more profitable due to being open for the full year and thus should remain open for the full period.
|