Grand Garden is a luxury hotel with 150 suites. Its regular suite rate is $220 per night per suite. The hotel’s cost per night is $145 per suite and consists of the following.
Variable direct labor and materials cost $ 38
Fixed cost [($5,870,000/150 suites) ÷ 365 days] 107
Total cost per night per suite $ 145
The hotel manager received an offer to hold the local Bikers’ Club annual meeting at the hotel in March, which is the hotel’s low season with an occupancy rate of under 55%. The Bikers’ Club would reserve 45 suites for three nights if the hotel could offer a 55% discount, or a rate of $99 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is $145.
Required:
Prepare an analysis of this offer for the hotel manager.