Nestled in the heart of the CBD within walking distance of the iconic Sydney Opera House, the Radisson Blu Plaza Hotel Sydney treats guests to an attractive blend of classic architecture and modern elegance. With 300 spacious rooms, they offer free wireless Internet, an on-site spa and an award-winning restaurant which offers complimentary breakfast. The management is planning for their peak and busy time of the year which is the last week of December from 24th December till 1st of January 2018. As there is tough competition this season they have planned for a lot of freebies this time by increasing expenses which in turn would allow them to book all the rooms. the following are the freebies that they have planned to provide
Free courtesy Breakfast ?They are expecting to sell all the rooms at the same price for $302 dollars / night. ?
Radisson Blu has got two offers from travel agents in Sydney which they are likely to consider after seeking your advice as a revenue manager
Option A: If they accept this offer they will make a profit of $50000
Option B: If they accept this offer they will make a profit of $30000
Using the formula: BEP(no room) Break Even Point= Fixed cost/ Contribution margin per night room ?
This report briefly discusses about the cost drivers & cost behaviours and how the same can be identified for calculation of production cost of any product. There are two types of cost in production of any product which is fixed cost & variable cost. Both have been briefly explained along with determination of breakeven analysis of the company as per the requirements.
There are many of the costs that are faced by the company and these are further broken down into 2 main categories, the first being fixed costs and these second being variable costs.
The fixed costs are the costs that do not vary with the level of output achieved. These are also termed as the sunk costs since these are the costs in respect of which obligation has already been decided. The examples include rent, buildings etc.
The following is the chart which shows in the fixed costs:
Then the second are the variable costs. These are the costs that vary with the level of the output achieved. These are other than the sunk costs. The examples include labour, capital etc.
Variable costs are costs that vary with output. Generally variable costs increase at a constant rate relative to labour and capital. Variable costs may include wages, utilities, materials used in production, etc (Fundamental finance, 2018).
The following is the variable expense chart:
The following is the desired identification:
Break even analysis is not much of a business goal. It is the amount of the revenue when it is able to cover its expenses. The formula of this is Fixed expenses/Contribution per unit.
There are some of the costs that increase with the level of sales such as the materials production labour etc. these are termed as the variable costs. Then there are some of the expenses that do not rise with the level for sales achieved (Small business chron, 2018).
This analysis is helpful in the following:
The following is the desired break-even analysis:
(Amounts in $) |
|||
Particulars |
VC |
FC |
Total |
Full time wages |
18,000.00 |
||
Casual employees wages |
12,000.00 |
||
Internet charges |
600.00 |
||
Free breakfast charges |
2,000.00 |
||
Electricity |
5,600.00 |
||
Water expenses |
2,800.00 |
||
Public liability insurance |
720.00 |
||
Marketing charges |
1,200.00 |
||
Laundry expenses |
350.00 |
||
Superannuation charges for full time employees |
1,710.00 |
||
Superannuation charges for casual employees |
1,140.00 |
||
Telephone expenses |
120.00 |
||
Waste removal expenses |
960.00 |
||
Total estimated expenses |
23,090.00 |
24,110.00 |
47,200.00 |
Particulars |
(Amounts in $) |
Revenue per night per room |
302.00 |
Number of rooms |
300.00 |
Number of days |
7.00 |
Total revenue |
6,34,200.00 |
Particulars |
(Amounts in $) |
Total revenue |
6,34,200.00 |
Less: variable costs |
23,090.00 |
Contribution |
6,11,110.00 |
Contribution per room |
291.00 |
Break even point in room |
Fixed costs/Contribution per room |
82.85 |
|
Or 83 rooms |
Hence, from the above, one could conclude that the break-even room for the hotel is 108 rooms.
The following are some of the ways through which break even points could be reduced resulting to more profit:
The above would lead us in the calculation of the margin of safety which would help us in comparing in the amounts of the revenue that have been eared or the units that would be required in for the purposes of covering in the fixed along with the variable costs. It could be stated that the company would have to rent out about 83 rooms in order to achieve a no profit or no loss situation.
The concept of target profit implementation means that any company would desire in the profits so that he is able to continue his business in the near future.
The following is the calculation of the profit for the hotel:
Particulars |
Option 1 |
Option 2 |
Contribution margin per room |
291.00 |
291.00 |
Total amount of fixed costs |
24,110.00 |
24,110.00 |
Estimated profit |
50,000.00 |
30,000.00 |
Estimated room booking |
254.67 |
185.95 |
Or 255 |
Or 186 |
From the above, it could be said that the company would benefit off if it goes for option B since the proposals states that option A would require in more number of rooms and the option B would require in lesser number of rooms (Accounting for management, 2018). If the hotel for more number of rooms, then the hotel will have no opportunity to generate in more revenues whereas if it goes for option B, (Francke, 2008) it would lead to lesser number of rooms being occupied which would in turn lead to more generation of revenue for the hotel (Small business chron, 2018).
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