Skyview Manor Case
The principal question of the case study is whether Skyview Manor should stay open during the off-season or not. Currently, Skyview Manor is operating during the skiing season which opens a total of 120 hotel operating days but if they remain open the hotel will operate 365 days a year.
The manager of the hotel, Mr. Kacheck, is worried about off-season losses. Mr. Kacheck proposed following ideas in order to increase the occupancy and decrease the losses. * Stay open in the off-season and advertise * Stay open in the off-season, advertise, and add a heated/covered pool * Stay open in the off-season and add a heated/covered pool (no advertising) * Stay open in the off-season, advertise and add a seasonal pool
To begin our analysis, Skyview Manor’s Contribution Margin Income Statement must be analyzed for cost behaviors. A cost behavior refers to how a cost changes as an activity changes. Fixed costs remain unchanged when activity changes. Average fixed cost per unit goes down as activity goes up. This is an inverse relationship. Variable costs, however, change when activity changes. The variable cost per unit remains the same over wide ranges of activity within the relevant range. Total variable costs change directly and in proportion to changes in activity.
Break-even point for Skyview Manor is based on the number of rooms that must be rented out during the season. Break-even point is the level of sales at which profit is zero and is useful in understanding the lowest amount of activity needed to prevent losses from occurring. The analysis information is calculated on a per room basis. This information is extremely important when evaluating which alternative/option will be used to increase business and or sales.
The contribution margin (CM) approach states that each unit sold provides a certain dollar contribution, after variable expenses are paid, that goes toward covering fixed costs. Therefore, subtracting unit variable expenses from
The manager of the hotel, Mr. Kacheck, is worried about off-season losses. Mr. Kacheck proposed following ideas in order to increase the occupancy and decrease the losses. * Stay open in the off-season and advertise * Stay open in the off-season, advertise, and add a heated/covered pool * Stay open in the off-season and add a heated/covered pool (no advertising) * Stay open in the off-season, advertise and add a seasonal pool
To begin our analysis, Skyview Manor’s Contribution Margin Income Statement must be analyzed for cost behaviors. A cost behavior refers to how a cost changes as an activity changes. Fixed costs remain unchanged when activity changes. Average fixed cost per unit goes down as activity goes up. This is an inverse relationship. Variable costs, however, change when activity changes. The variable cost per unit remains the same over wide ranges of activity within the relevant range. Total variable costs change directly and in proportion to changes in activity.
Break-even point for Skyview Manor is based on the number of rooms that must be rented out during the season. Break-even point is the level of sales at which profit is zero and is useful in understanding the lowest amount of activity needed to prevent losses from occurring. The analysis information is calculated on a per room basis. This information is extremely important when evaluating which alternative/option will be used to increase business and or sales.
The contribution margin (CM) approach states that each unit sold provides a certain dollar contribution, after variable expenses are paid, that goes toward covering fixed costs. Therefore, subtracting unit variable expenses from
References: (n.d.). Retrieved July 17, 2010, from Mortgage-x.com: http://mortgage-x.com/calculators/results.asp Investment Growth Calculator. (n.d.). Retrieved July 17, 2010, from Fidelity.com: http://personal.fidelity.com/toolbox/growth/growth.shtml Noreen, E. B. (2008). Managerial Accouting for Managers. New York: McGraw-Hill Irwin. Shank, John K. "30." Cases in Cost Management: A Strategic Emphasis. Third ed. Mason, OH: Thomson/South-Western, 2006. 225-26.