Problem 1 - Gerard has been successfully operating a bed and breakfast in South Carolina from his home in Atlanta. Based on the recurring income he receives from that property, he's decided to expand his work in the hospitality industry. Although he wants to open a luxury boutique hotel in the trendy part of Atlanta, he's instead decided to work with Annisa to purchase a 25-room budget motel.
Based on historical records, Gerard and Annisa expect its occupancy next year to be 80%. Their owners' investment is $402,800. They want an after-tax return on their investment of 15%. Tax rate is 25%.
- Interest on a long-term mortgage is 10%. Present balance outstanding is $806,400.
- Depreciation rate on the building is 10% of the present book value of $700,200. Depreciation on the furnishings and equipment is at 20% of the consolidated present book value of $150,400
- Other known fixes costs total $141,800 a year
- At 80% occupancy rate, the mote's operating expenses, wages, supplies, and laundry are calculated to be $55,400 a year
- The motel has other income from vending machines of $5,210 a year
1. To cover all costs and produce the required net income after tax, what should the motel's average room rate be next year?
2. If the motel operates at 30% double occupancy and has an $8.00 spread between its single and double rates, what will single and double room rates be? Assume only one common room size, all with the same rates.
Problem 2 - Tiayana and Maria met at CityTech years ago, and now own a 140-seat dining room, featuring new American cuisine. It's the hottest place in Brooklyn. Tiayna and Maria, but much of their success is because they keep close tabs on the restaurant's financials. Right now, they're calculating the seat turnover and the number of customers per day, etc.
Lunch. Dinner
Sunday Closed 180
Monday 160 110
Tuesday 170 110
Wednesday 175 112
Thursday 160 180
Friday 180 210
Saturday 50 250
1. For each meal period and for each day of the week calculate the seat turnover.
2. Calculate the average number of customers per day and the average seat turnover for the week for each meal period.
3. List some of the ways in which the information in parts A and B would be useful to them.
Problem 3 - Tariq's family has lent him money to invest in a restaurant in New York City, now that he's earned his bachelor's degree at CityTech. They know he's an awesome cook, but now they also know he understand the financials of a business and is super-smart. Tariq has invested $180,000 in a new Moroccan and Mediterranean family-style restaurant, of which $160,000 was immediately used to purchase equipment and $20,000 was retained for working cash. Estimates for the first year of business are as follows:
- Menu selling prices to be established to give a markup of 150% over cost of food sold
- Variable wages, 28% of sales revenue
- Fixed wages, $51,600
- Other variable costs, 7% of sales revenue
- Rent, $36,000
- Insurance, $4,800
- Depreciation on equipment, 20%
- Return on investment desired, 12%
- Income tax rate, 30%
Tariq's restaurant has 60 seats and is open 5 days a week for lunch and dinner only. Lunch sales revenue is expected to be 40% of total volume with 2 seat turnovers. Dinner revenue will be 60% of total volume, with 1.25 turnovers.
Tariq must calculate the average check per meal period that will cover all costs, including desired return on investment. He's done the calculation himself, but reached out to two classmates, Renald and Angela, to confirm his numbers. What is the average check per meal period that Tariq's restaurant must achieve to cover all costs, and the desired return on investment?
Problem 4 - Jamesha has continued to run her successful catering business since graduating from CityTech. In her spare time, she's always willing to help her classmates, however. Her classmate Shi Lin has opened a coffee shop, and has asked Jamesha for help with standard costing. The sales records for Shi Lin's coffee shop, which - so far -- has only six items on its menu show the following quantities sold during the month of January. Item standard cost and selling prices are also indicated.
Item Cost Selling Price QuantitySold
1. $2.50. $6.00. 654
2. $1.80 $4.60 2195
3 $2.30. $7.00. 1100
4. $1.80. $5.30. 990
5. $2.25. $5.00. 295
6. $2.80. $8.00. 259
Actual cost of sales for the month of January was $11,885. Actual sales revenue for the month of January was $30,880. Shi Lin has made calculations, but wants Jamesha to double-check her numbers.
1. Calculate the stand cost percentage and the actual cost percentage for January.
2. Compare the results. If you were the dining room manager, explain why you would or would not be satisfied with the results.
Problem 5 - Victoria and Evan have launched a food consulting business, called V&E. They're generally brought in to diagnose problems in restaurants. One of their CityTech classmates, Dayana, has asked them to analyze her restaurant, which she launched with her family in Queens. As the restaurant has grown, Dayana has had to hire non-family members. Dayana knows her food cost is higher than in should be, but because the restaurant has become so popular and well regarded, Dayana has been focused on operations, menu choices, hiring a mixologist, etc. Dayana thinks the problem might be in the receiving area and/or the dining area because she has good control over food in storage and production. Because she's so busy, she's brought in V&E to help. Victoria and Evan notice that when drivers make deliveries, they obtain a signature from any restaurant employee who happens to be near the receiving dock in the absence of the receiver or storekeeper. Deliveries are then left at the receiving dock until the goods can be moved to a storage area. Sometimes invoices are left with food containers; at other times, no documentation is left. It is assumed the suppliers will mail the missing invoices the Dayana's office.
In the dining area, Victoria and Evan notice that the servers do not use printed sales checks to record customers' orders, but simply note orders on scratch pads. They then tell the cooks what they need, and they pick up and deliver food to the customers,. When the customers wish to pay, servers jot down the total amount due on the scratch pad page, present the page to the customer, collect the cash, and put it into a cash drawer. Not sales revenue was recorded in the cash register. "Used" scratch pad pages are placed in a box beside the cash drawer.
In both receiving and dining areas, outline the possible problems that current procedures create and suggest to Dayana what prices that would probably solve the problems.
Problem 6 - Angelika and Ericka have decided to open a resort hotel in the Caribbean. Their classmate, Rie, who has been super successful with her travel company, has offered to fund their efforts, as she knows how capable they are. But she wants to make sure they really demonstrate a deep understanding of the financials. The 45-room resort they plan to open will have three sizes of rooms, all decorated differently. They are super creative, and know that Travel & Leisure and other publications are more likely to give them free publicity if they have hip looking rooms. Also, cool décor will disguise the fact that the rooms are quite small.
The sizes of the rooms are as follows:
- 15 singles at 150 square feet each
- 15 doubles at 220 square feet each
- 15 suites at 380 square feet each.
Occupancy rates are expected to be 80%, which Angelika and Ericka understand is standard for travel resorts on this island. Demand for each type of room is approximately equal. They've done extensive research and modeling of their expected financials for their first year. They've projected total sales revenue from rooms next year will be $912,500. Rie wants to determine what the average room rate should be for each type of room, assuming average room rate will be based solely on room size. What will the average room rate for each type of room be next year?