The McIntyre Resort （MR), which is privately owned, is a world famous luxury hotel and gol

The McIntyre Resort (MR), which is privately owned, is a world famous luxury hotel and golf complex. It has been chosen as the venue to stage ‘The Robyn Cup’, a golf tournament which is contested by teams of golfers from across the globe, which is scheduled to take place during July 2009. MR will offer accommodation for each of the five nights on which guests would require accommodation.

The following information is available regarding the period of the tournament:

(1) Hotel data:

Total rooms 2,400

Room mix:

Double rooms 75%

Single rooms 15%

Family rooms 10%

Fee per room per night ($):

Double rooms 400

Single rooms 300

Family rooms 600

Number of guests per room:

Double rooms 2

Single rooms 1

Family rooms 4

When occupied, all rooms will contain the number of guests as above.

Costs:

Variable cost per guest per night $100

Attributable fixed costs for the five-day period:

Double rooms $516,000

Single and family rooms (total) $300,000

(2) Accommodation for guests is provided on an all-inclusive basis (meals, drinks, entertainment etc).

(3) The objective of the hotel management is to maximise profit.

(4) The hotel management expect all single and family rooms to be ‘sold out’ for each of the five nights of the

tournament. However, they are unsure whether the fee in respect of double rooms should be increased or

decreased. At a price of $400 per room per night they expect an occupancy rate of 80% of available double

rooms. For each $10 increase/decrease they expect the number of rooms to decrease/increase by 40.

Required:

(a) (i) Calculate the profit-maximising fee per double room that MR should charge per night during the

tournament; (6 marks)

(ii) Calculate how much profit would be earned from staging the tournament as a consequence of charging

that fee. (4 marks)

(b) The management of the hotel are concerned by the level of variable costs per guest night to be incurred in respect of the tournament. A recent review of proposed operational activities has concluded that variable cost per guest per night in all rooms in the hotel would be reduced by 20% if proposed changes in operational activities were made. However, this would result in additional attributable fixed costs amounting to $200,000 in respect of the five day period.

Required:

Advise management whether, on purely financial grounds, they should make the proposed changes in

operational activities. (6 marks)

(c) Discuss TWO initiatives that management might consider in order to further improve the profit from staging the golf tournament. (4 marks)