Question

Ouestion 3 Rest & Fun Motel operates a 50-room motel near an amusement park. During September, Rest & Fun experienced a 65% occupancy rate from Monday evening through Thursday evening (weeknights). On Friday through Sunday evenings (weekend nights), however, occupancy increases to 90%. There were 18 weeknights and 12 weekend nights in September. All rooms are similar and Rest & Fun charges RM80 per room per night (room-night). The company recently hired Adam Haikal to manage the motel to increase the motel's profitability. The following information relates to Rest & Fun Motel's costs: Fixed Cost Variable Cost Depreciation RM15.200 per month Administrative costs RM25,980 per month Housekeeping and supplies RM12,000 per month RM16 per room-night Breakfast RM8,200 per month RM4 per breakfast served Rest & Fun offers free breakfast to guests. In September, there were an average of two breakfasts served per room-night on weeknights and 4 breakfasts served per room-night on weekend nights. Required: (a) Calculate the cost per room-night for September. (5 marks) (b) Adam Haikal considers charging different rates for weeknights and weekend nights. He estimates that if Rest & Fun decreases the rate to RM75 per room-night on weeknights, occupancy on those nights will increase to 75%. He also estimates that if the weekend nights' rate increases to RM105 per room-night, occupancy on those nights however will remain at 90%. i. Would this be a good move for Rest & Fun? Show your calculation. (7 marks) ii. In your opinion, why would the guests tolerate a RM30 price difference between weeknights and weekend nights? (2 marks) (c) Refer to the original data. Adam Haikal considers stopping serving breakfast to guests in order to cut cost. There are many food stalls nearby that offer traditional cuisines at affordable prices as an alternative for the guests. He estimates that if breakfast is eliminated, the rate of RM65 per room-night is competitive. The employees who handle breakfast will be laid off and this will save Rest & Fun RM3,000 per month Variable housekeeping and supplies however will increase by RM3 per room-night to add more mini bar items. With the elimination of breakfast and reduction in rate per room-night, the weeknights' occupancy is expected to increase by 15%, but the weekend nights' occupancy will decrease to 85%. i. Should Rest & Fun stop serving breakfast to guests? Show your calculation. (6 marks) ii. List TWO qualitative factors that Rest & Fun should consider in deciding whether to stop serving breakfast to guests (please include Islamic perspective in your answer). (2 marks) (d) Refer to the original data. A travel agency has approached Rest & Fun with a proposal to offer last-minute deals on empty rooms on both weeknights and weekend nights. Assuming that there will be an average of three breakfasts served per room- night, what is the minimum price that Rest & Fun could accept on the last-minute rooms? (3 marks) [Total: 25 marks)

Answer 1

Solving first 4 sub questions.

	Week nights	Weekend nights	Total
Total rooms (per day)	50	50
Occupancy rate	65%	90%
Rooms occupied (per day)	32.5	45
No. of days	18	12
Total rooms occupied in a month (A)	585	540	1125
Room per night charge	80	80
Revenue	46800	43200	90000
Variable cost
Housekeeping and supplies (per room night) (B)	16	16
Total housekkeping expenses (A * B)	9360	8640	18000
Breakfast served per room night	2	4
Total breakfast served in a month	1170	2160
Cost of per breakfast	4	4
Total breakfast expenses	4680	8640	13320
a) Total cost	RM	RM
Fixed cost
Depreciation	15200
Administrative cost	25980
Housekeeping and supplies	12000
Breakfast	8200	61380
Variable cost
Housekeeping and supplies	18000
Breakfast	13320	31320
Total cost		92700
Total number of nights		1125
Cost per room night		82.40
b) (i)
	Week nights	Weekend nights	Total
Total rooms (per day)	50	50
Occupancy rate	75%	90%
Rooms occupied (per day)	37.5	45
No. of days	18	12
Total rooms occupied in a month (A)	675	540	1215
Room per night charge	75	105
Revenue	50625	56700	107325
Variable cost
Housekeeping and supplies (per room night) (B)	16	16
Total housekkeping expenses (A * B)	10800	8640	19440
Breakfast served per room night	2	4
Total breakfast served in a month	1350	2160
Cost of per breakfast	4	4
Total breakfast expenses	5400	8640	14040
Total variable expesnes in revised pricing			33480
Total variable expesnes in old pricing			31320
Increase in variable cost			2160
Total revenue in revised pricing			107325
Total revenue in old pricing (1125*80)			90000
Increase in variable cost			17325
Increase in contribution margin			15165
So, change in pricing will be a good move as it will give additional contribution margin of RM 15165 to the motel.
(ii) Occupancy rate is higher during weekends which will lead to higher cost
Also breakfast served in twice as compared to weeknights occupancy cost of which is
14040 + 8200 = 22240 RM per month i.e. RM 18.30 per room night
C) i)
	Week nights	Weekend nights	Total
Total rooms (per day)	50	50
Occupancy rate	80%	85%
Rooms occupied (per day)	40	42.5
No. of days	18	12
Total rooms occupied in a month (A)	720	510	1230
Room per night charge	65	65
Revenue	46800	33150	79950
Variable cost
Housekeeping and supplies (per room night) (B)	19	19
Total housekeeping expenses (A * B)	13680	9690	23370
Reduction in revenue			10050
Increase in variable cost			5370
Saving in fixed cost (8200 +3000)			11200
As reduction in revenue is more than saving in cost, it is not advisable to go for this option