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Gordan Galaxy Hotel has conducted trend analyses for the last 5-years for the preparation of budget for the year 2021. It has been observed that the average occupancy during the off-season i.e. November to April remains below 60%.
Revenue Contribution from 3 profit centres: Accommodation: 50%, Restaurant: 30%, Theatre 20% The three Profit centres have the following pattern of Contribution %:ACCOMMODATION
Revenue 100
Wages 25
Direct cost 15
Contribution 60RESTAURANT
Revenue 100
Wages 20
Direct cost 50
Contribution 30THEATRE
Revenue 100
Wages 15
Direct cost 45
Contribution 40Estimated Revenue for the current year is Rs. 60 Million and Fixed cost Rs. 10 Million.
To improve return on capital employed (ROCE) of Rs. 110 million, following two suggestions have
Option 1. An offer of two-nights reduced price at Rs. 16,000 during off-season (November to April). It is expected that occupants under this offer will spend 30% of the accommodation charge in restaurant and 15% in the theatre.
Option 2. To increase restaurant and theatre prices by 15% and also increase the room rent (assuming that there will be no change in occupancy).Calculate the expected return on capital employed under the budget before tax:
Hi there,
This is an exceptionally long question and you will not see such detail in the CIMA P2 objective test exam.
If you do need help with a CIMA style question – please post the answer and let me know which bit you do not follow/ understand (I will then be able to target that area rather than answer the entire question).
Thanks
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