Vernon Cabins is a small motel chain located near state and national parks. Each property is made up of separate cabins. The chain has 10 properties with an average of 15 cabins at each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 80 percent, based on a 180-day season. The properties are closed from late fall until early spring. The average rate was $225 per night per cabin. The basic unit of operation is the “night,” which is one cabin occupied for one night. The operating income for year 1 is as follows. Vernon Cabins Operating Income Year 1 Sales revenue Lodging $ 4,860,000 Incidentals 475,200 Forfeited deposits 129,600 Total revenues $ 5,464,800 Costs Labor $ 1,748,000 Incidentals 451,200 Miscellaneous 86,400 Utilities, etc. 95,000 Depreciation 550,000 Management 120,000 Marketing 230,000 Property taxes 1,640,000 Total costs $ 4,920,600 Operating profit $ 544,200 Other revenues consist of incidentals (vending machine purchases, supplies, and so on) and forfeited deposits. In year 1, incidentals revenue averaged $22 per night. Reservations require a deposit. Guests who fail to cancel before three nights prior to a stay forfeit the deposit. In year 1, forfeited deposits averaged $6 per night. In year 1, the average fixed labor cost was $110,000 per property. The remaining labor cost was variable with respect to the number of nights. The costs of incidentals include $30,000 per season per property. The remaining cost of incidentals is variable with respect to the number of nights. Miscellaneous costs are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and property taxes) are fixed for the firm. At the beginning of year 2, Vernon will close one of its properties with no change in the average number of rooms per property. The occupancy rate is expected to decrease to 70 percent. Management has made the following additional assumptions for year 2: The average room rate will increase by 10 percent. Incidental revenues per night are expected to increase by 5 percent. The forfeited deposit revenue per night is not expected to change. The fixed labor cost is expected to increase by 12 percent per property. The variable labor cost per night is not expected to change. Incidental cost factors are not expected to change. The miscellaneous cost for a night is expected to increase by 25 percent. Utilities costs per property are expected to increase by 20 percent. Depreciation costs per property are forecast to remain unchanged. Management costs will increase by 4 percent and marketing costs will decrease by 6 percent. Property taxes will decrease by $180,000 with the closing of the one property.

Vernon Cabins is a small motel chain located near state and national parks. Each property is made up of separate cabins. The chain has 10 properties with an average of 15 cabins at each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 80 percent, based on a 180-day season. The properties are closed from late fall until early spring. The average rate was $225 per night per cabin. The basic unit of operation is the “night,” which is one cabin occupied for one night. The operating income for year 1 is as follows. Vernon Cabins Operating Income Year 1 Sales revenue Lodging $ 4,860,000 Incidentals 475,200 Forfeited deposits 129,600 Total revenues $ 5,464,800 Costs Labor $ 1,748,000 Incidentals 451,200 Miscellaneous 86,400 Utilities, etc. 95,000 Depreciation 550,000 Management 120,000 Marketing 230,000 Property taxes 1,640,000 Total costs $ 4,920,600 Operating profit $ 544,200 Other revenues consist of incidentals (vending machine purchases, supplies, and so on) and forfeited deposits. In year 1, incidentals revenue averaged $22 per night. Reservations require a deposit. Guests who fail to cancel before three nights prior to a stay forfeit the deposit. In year 1, forfeited deposits averaged $6 per night. In year 1, the average fixed labor cost was $110,000 per property. The remaining labor cost was variable with respect to the number of nights. The costs of incidentals include $30,000 per season per property. The remaining cost of incidentals is variable with respect to the number of nights. Miscellaneous costs are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and property taxes) are fixed for the firm. At the beginning of year 2, Vernon will close one of its properties with no change in the average number of rooms per property. The occupancy rate is expected to decrease to 70 percent. Management has made the following additional assumptions for year 2: The average room rate will increase by 10 percent. Incidental revenues per night are expected to increase by 5 percent. The forfeited deposit revenue per night is not expected to change. The fixed labor cost is expected to increase by 12 percent per property. The variable labor cost per night is not expected to change. Incidental cost factors are not expected to change. The miscellaneous cost for a night is expected to increase by 25 percent. Utilities costs per property are expected to increase by 20 percent. Depreciation costs per property are forecast to remain unchanged. Management costs will increase by 4 percent and marketing costs will decrease by 6 percent. Property taxes will decrease by $180,000 with the closing of the one property.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter1: Introduction To Managerial Accounting

Section: Chapter Questions

Problem 6BE: Jakes Cabins is a small motel chain with locations near the national parks of Utah, Wyoming, and...

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Question

The operating income for year 1 is as follows.

Vernon Cabins
Operating Income
Year 1
Sales revenue
Lodging	$ 4,860,000
Incidentals	475,200
Forfeited deposits	129,600
Total revenues	$ 5,464,800
Costs
Labor	$ 1,748,000
Incidentals	451,200
Miscellaneous	86,400
Utilities, etc.	95,000
Depreciation	550,000
Management	120,000
Marketing	230,000
Property taxes	1,640,000
Total costs	$ 4,920,600
Operating profit	$ 544,200

Other revenues consist of incidentals (vending machine purchases, supplies, and so on) and forfeited deposits. In year 1, incidentals revenue averaged $22 per night. Reservations require a deposit. Guests who fail to cancel before three nights prior to a stay forfeit the deposit. In year 1, forfeited deposits averaged $6 per night.

In year 1, the average fixed labor cost was $110,000 per property. The remaining labor cost was variable with respect to the number of nights. The costs of incidentals include $30,000 per season per property. The remaining cost of incidentals is variable with respect to the number of nights. Miscellaneous costs are all variable with respect to the number of nights. Utilities and depreciation are fixed for each property. The remaining costs (management, marketing, and property taxes) are fixed for the firm.

At the beginning of year 2, Vernon will close one of its properties with no change in the average number of rooms per property. The occupancy rate is expected to decrease to 70 percent. Management has made the following additional assumptions for year 2:

The average room rate will increase by 10 percent.
Incidental revenues per night are expected to increase by 5 percent.
The forfeited deposit revenue per night is not expected to change.
The fixed labor cost is expected to increase by 12 percent per property. The variable labor cost per night is not expected to change.
Incidental cost factors are not expected to change.
The miscellaneous cost for a night is expected to increase by 25 percent.
Utilities costs per property are expected to increase by 20 percent.
Depreciation costs per property are forecast to remain unchanged.
Management costs will increase by 4 percent and marketing costs will decrease by 6 percent.
Property taxes will decrease by $180,000 with the closing of the one property.

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