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Pirate Properties is a chain of extended stay hotel properties. The chain has 15 properties with an
average of 200 rooms in each property. In 2022, the occupancy rate (number of rooms filled
divided by the number of rooms available) was 70 percent, based on a 365-day year. The
average room rate was $180 for a night.
The operating income for 2022 is as follows:
Pirate Properties
Income Statement
2022
Sales Revenue:
Lodging $137,970,000
Food & beverage 19,929,000
Miscellaneous 9,198,000
Total Revenues $167,097,000
Costs:
Labor $ 44,325,000
Food & Beverage 14,563,500
Miscellaneous 8,431,500
Management 2,800,000
Utilities 40,500,000
Depreciation 9,750,000
Marketing 26,500,000
Other Costs 8,000,000
Total Costs $ 154,870,000
Operating Profit $ 12,227,000
In 2022, the average fixed labor cost was $400,000 per property. The remaining labor cost was
variable with respect to the number of nights. Food and beverage cost and miscellaneous cost
are all variable with respect to the number of nights. Utilities and depreciation are fixed for each
property. The remaining costs (management, marketing, and other costs) are fixed for the firm.
At the beginning of 2023, Pirate Properties will open four new properties with no change in the
average number of rooms per property. The occupancy rate is expected to remain at 70 percent.
Management has made the following additional assumptions for 2023:
The average room rate will increase by 5 percent.
Food and beverage revenues per night are expected to decline by 20 percent with no
change in the cost.
The labor cost (both the fixed per property and variable portion) is not expected to
change.
The miscellaneous cost for the room is expected to increase by 25 percent, with no
change in the miscellaneous revenues per room.
Utilities and depreciation costs (per property) are forecast to remain unchanged.
Management costs will increase by 8 percent, and marketing costs will increase by 10
percent.
Other costs are not expected to change.
Required:
1) Prepare a budgeted income statement for 2023 in Excel. Each cell should show your
calculations.
2) Management wants to also look at what will happen in 2023 if they raise the price to
$210 a night. Management assumes that if they raise the price then they estimate that the
occupancy rate will drop to 60%. Prepare a budgeted income statement under this “high
price” strategy in Excel. Each cell should show your calculations. All other estimates
(cost per night, property costs, etc.) will remain the same as in requirement 1.
3) Management wants to also look at what will happen in 2023 if they lower the rate to
$170. At this rate they assume the occupancy rate will increase to 80%. Prepare a
budgeted income statement under this “high occupancy” strategy in Excel. Each cell
should show your calculations. All other estimates (costs per night, property costs, etc.)
will remain the same as in requirement 1.
4) All three income statements should be on the same excel spreadsheet just in 3 different
columns.
