Chuck Stout is the RM for the Holiday Inn Express. His 220-room property normally sells 85 percent of its rooms on Tuesday nights at an ADR of $141.50. All variable costs related to selling his rooms are $55.00 per room. The DOSM at his Holiday Inn Express is proposing to place a bid to sell 125 rooms for a Tuesday night next month at a rate of $109.00 per room. Chuck believes that if the hotel wins this group rooms bid, the transient room sales for that day will ensure a sell-out at the rate of $141.50.
Chuck Stout is the RM for the Holiday Inn Express. His 220-room property normally sells 85 percent of its rooms on Tuesday nights at an ADR of $141.50. All variable costs related to selling his rooms are $55.00 per room. The DOSM at his Holiday Inn Express is proposing to place a bid to sell 125 rooms for a Tuesday night next month at a rate of $109.00 per room. Chuck believes that if the hotel wins this group rooms bid, the transient room sales for that day will ensure a sell-out at the rate of $141.50.
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter9: Decision Making Under Uncertainty
Section: Chapter Questions
Problem 36P
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Chuck Stout is the RM for the Holiday Inn Express. His 220-room property normally sells 85 percent of its rooms on Tuesday nights at an ADR of $141.50. All variable costs related to selling his rooms are $55.00 per room. The DOSM at his Holiday Inn Express is proposing to place a bid to sell 125 rooms for a Tuesday night next month at a rate of $109.00 per room. Chuck believes that if the hotel wins this group rooms bid, the transient room sales for that day will ensure a sell-out at the rate of $141.50.
p.s. Net Revenue = Total Revenue - Total Variable Cost
Expert Solution
Step 1
| If contract is awarded | ||||||
| No of rooms | Room Price | Room Variable cost | Contribution per room: Room Price less Room cost | Total Income: Contribution * No of rooms | ||
| Group Award | 125.00 | 109.00 | 55.00 | |
|
|
| Individual | 95.00 | 141.50 | 55.00 | |
|
|
| Total | 220.00 | Total | |
|||
| So option A is correct | ||||||
| If contract is not awarded | ||||||
| No of rooms | Room Price | Room Variable cost | Contribution per room: Room Price less Room cost | Total Income: Contribution * No of rooms | ||
| Group Award | - | 109.00 | 55.00 | |
|
|
| Individual | 187.00 | 141.50 | 55.00 | |
|
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| Total | 187.00 | Total | |
|||
| So option A is correct | ||||||
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