Winter Garden is a luxury hotelwith 150 suites. Its regular suite rate is $250 per night persuite. The hotel's cost per night is $140 per suite and consists ofthe following.
Variable direct labor and materials cost $ 30
Fixed cost [($6,022,500/150 suites) ÷ 365 days] 110
Total cost per night per suite $ 140
The hotel manager received an offerto hold the local Rotary Club annual meeting at the hotel in March,which is the hotel's low season with an occupancy rate of under50%. The Rotary Club would reserve 50 suites for three nights ifthe hotel could offer a 50% discount, or a rate of $125 per night.The hotel manager is inclined to reject the offer because the costper suite per night is $140. The manager believes that if 50 suitesare offered at the rate of $125 per night for three nights, thehotel would lose $2,250, computed as ($125 - $140) × 50suites × 3 nights.
Required:
(a) Prepare an analysis of this offerfor the hotel manager.