The Riverfront, a hotel in Savannah, Georgia. For the hotel,

The Riverfront, a hotel in Savannah, Georgia. For the hotel, management expects occupancy rates to be 95% in December, January and February; 85% in November, March and April; and 70% the rest of the year. This hotel has 325 rooms and the room rental is $230.00 per night. Of this, on average 10% is received as a deposit the month before the stay, 60% is received in the month of the stay, and 28% is collected the month after. The remaining 2% is never collected. For simplicity, assume that there are 30 days in each month.

Most of the costs of running the hotel are fixed. The variable costs are only $30.00 per occupied room, per night. Fixed salaries (including benefits) run $400,000 per month, depreciation is $350,000 a month, other fixed costs are $125,000 per month, and interest expense is $500,000 per month. Variable costs and salaries are paid in the month they are incurred, depreciation is recorded at the end of each quarter, other fixed costs and salaries are paid in the month they are incurred, and interest is paid semi-annually each June and December. For simplicity, assume that there are 30 days in each month. 

1. The client wants to know: How much would the hotel’s annual profit increase if occupancy increased by 5 percentage points during the off-season (that is from 70% to 75%) in each month from May to October. (Calculate a monthly income statement from January to December with the change in occupancy rates.)

 2. The client wants to know the unit contribution margin.

 3. The client wants to know the break-even point for the hotel.

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