Question

ABC hotel has 200 rooms and has a policy to determine its room rates based on consumers capacity to pay. For example busniess clients pay $1,200 per night and group tours $900 per night. The incremental cost of servicing a room is worked out at $110 per room. On average, most guest stay for three (3) nights. Rooms division manager is trying to establish if four (4) week advance reservation should be taken for a group booking of 40 rooms and three (3) nights of 7th , 8th and 9th June 2018. According to the reservation record, 80 rooms for the three (3) nights of 7th , 8th , and 9th , June 2018 are already booked by various business clients, and the historical trends of the past four (4) years suggest that 90% of the remaing 120 rooms would be sold to other busniess clients. Your are required to a) Prepare a detailed recommendation document explaining the important facts and figures to support if the group tour booking of 40 rooms for three (3) nights, of 7th , 8th and 9th June 2018 should be accepted or rejected while considering the revenue maximisation, effect of revpar, incremental and relevant cost in preparing the recommendation documents

Answer 1

a) The group booking should be taken as the overall profit increases by $1200 based on following analysis.

Statement of relevant profit	No of rooms (Working -I)	Profit (Working - II)	Yes	No of rooms (Working -I)	Profit (Working - II)	No
Profit - Business	160	1090	174400	188	1090	204920
Profit - Group	40	790	31600
Total Profit			206000			204920
Incremental profit due to taking up group booking	1080

Working - I - Computation of rooms requirement
Total rooms	200
Rooms already reserved	80
Rooms that will be reserved based on 90% coverage	108
Balance Rooms	12
Rooms required for group	40
Free rooms	12
Business clients rooms to be given	28
Working - II - Computation of profit per room
Particulars	Business	Group	Differential profit per room
Revenue per room	1200	900	300
Cost	110	110	0
Profit	1090	790	300