The Ritz-Carlton has four hotels and resorts in the Caribbean and Mexico. For one of these…

The Ritz-Carlton has four hotels and resorts in the Caribbean and Mexico. For one of these hotels, management expects occupancy rates to be 95 per cent in December January and February; 85 per cent in November, March and April; and 70 per cent the rest of the year. This hotel has 300 rooms and the average room rental is €290 per night. Of this, on average 10 per cent is received as a deposit the month before the stay, 60 per cent is received in the month of the stay and 28 per cent is collected the month after.
The remaining 2 per cent is never collected. Most of the costs of running the hotel are fixed. The variable costs are only €30 per occupied room per night. Fixed salaries (including benefits) run €400,000 per month, depreciation is €350,000 a month, other fixed operating costs are €120,000 per month and interest expense is €600,000 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 operating costs are paid as incurred and interest is paid semi-annually each June and December.

1 Prepare a monthly cash budget for this Ritz-Carlton hotel for the entire year. For simplicity, assume that there are 30 days in each month.

2 How much would the hotel’s annual profit increase if occupancy rates increased by 5 per cent each month in the off-season (that is, from 70 per cent to 75 per cent in May–October)?

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