Financial Implications of Various Scenarios in Antonbach Ski Lodge - Case Study Example

 An analysis on the financial implications of various scenarios Currently Antonbach Ski Lodge prides itself as a mid-sized mountain village that offers moderate priced, good quality destinations. It operates mostly during the skiing peak season running from early December through to late March. We were required to analyze various scenarios and provide suggestions concerning the noted financial implications. Fixed and variable cost analysis Cost denotes the value of money used in any economic activity. In the case of Antonbach Ski Lodge, we analyzed the information provided and found the total fixed cost to be $ 755,848.64 while the total variable cost is $ 115,973.36. Fixed costs are incurred regardless of the opening of the lodge. They include, but not limited to labor costs, office expenses and insurance. Variable costs on the other hand are incurred when the lodge is open and includes guest amenities. (Exhibit 1) Contribution Margin Contribution margin is the balance of revenue after takin care of all variable costs. The total contribution margin for the east wing rooms is $134.51/room while that of the west wing rooms is $184.51/room. The east wing rooms are more profitable as compared to the west wing rooms. We find the weighted average contribution margin of east wing to be $80.84051 while that of west wing is $73.61949. (Panel B) Target units for a profit of $650,000 The target units to be 9,101.7 rooms (Panel C). More specifically, in the east wing we obtained a target of 30.26 rooms/day while in the west wing it is 45.58 rooms/day. The main implication of this is that the daily revenue is going to increase by $4,255. In terms of costs, the variable costs are going to increase. Investing in more marketing of the resort to improve occupancy rates. Panel D represents our in-depth analysis of this scenario. We obtained an increase in total revenue to $77,255 while the fixed cost will increase by $60,000. The figure of the marketing cost is a fixed cost as it is independent of the occupancy levels. It is going to be incurred in the current financial period only. This is a feasible plan as the increase in total revenue is more than the increase in cost. Incorporating a booking plan Since the revenue per room is going to change while the total cost per room remains constant, the contribution margin is going to change It is worth noting that the total revenue will increase by $21,423.6 and the total net income by $16,423.6 (Panel E) We find this to be a viable idea in the end as the increase in the revenue and net income is more than the reduction in cost per room. Opening the resort during summer and fall months. From the analysis, we found the plan is going to yield an operating loss of $8,152 (Exhibit 2). This is caused majorly by the increase in the operating expenses. Opening the resort more days will result to incurring more variable cost (Exhibit 1). It is also worth noting that the labor costs are increasing as the employees are working more than is the current situation. EXHIBIT 1 Operating Expense Variable ($) Fixed ($) Total ($) Salaries Manager 120,000 120,000 Assistant 40,000 40,000 Supervisors (2) 14,400 14,400 Desk Clerks (5) 48,000 48,000 Maids (4) 30,720 30,720 Payroll taxes & fringe benefits 88,592 88,592 Depreciation 156,922 156,922 Property Taxes 28,880 28,880 Advertising Expenses 50,000 50,000 Insurance 18,042 18,042 Repairs and Maintenance 3,553 75,000 78,553 Cleaning and Supplies 19,940 5,000 24,940 Guest Amenities 55,987 55,987 Technology and Telecommunications 19,832 19,832 Utilities 16,126 52,000 68,126 Linen Service 20,367.36 522.64 20,890 Office Expenses 7,938 7,938 TOTAL OPERATING EXPENSES 115,973.36 755,848.64 871,822 Number of Rooms Rented 7488 Variable Cost per Room Rented 15.49 Panel A: the Contribution Margin per product (east wing rooms and west wing rooms) Variable Cost per room: Variable Cost = = = $15.49 / room Fixed Cost per day: Fixed Cost = = = $6,298.74 / day The Contribution Margin per east wing room: Contribution Margin = Revenue –Variable Cost = $150 - $15.49 = $134.51 / room The Contribution Margin per west wing room: Contribution Margin = Revenue –Variable Cost = $200 - $15.49 = $184.51 / room The Contribution Margin per Product: Contribution Margin (east wing room) = Contribution Margin per room * the Number of room rented = $134.51 / room * 4500 = $605,295 Contribution Margin (west wing room) = Contribution Margin per room * the Number of room rented = $184.51 / room * 2988 = $551,315.88 Panel B: the weighted average Contribution Margin per room Sale Mix: East Wing room = = = 60.1% West Wing room = = = 39.9% WACM Total = WACM(East) + WACM(West) = $134.51 * 60.1% + $184.51 * 39.9% = 154.46 / room Panel C: Target Units for to earn operating profit of $650,000 Target Units = = = 9,101.7 rooms Target Units for East Wing room per day = = = 30.26 rooms / day Target Units for West Wing room per day = = = 45.58 room Panel D: investing in more marketing of the resort to improve occupancy rates Change in Revenue in East = △room Rented * Percent of East Wing room rented * Contribution Margin = 500 rooms * 60.1% * $134.51 / room 㲔300 * 134.51 = $40,353 Change in Revenue in West = △room Rented * Percent of West Wing room rented * Contribution Margin = 500 rooms * 39.9% * $184.51 / room 㲔200 * 184.51 = $36,902 Total Change in Revenue = Change in Revenue in East + Change in Revenue in West = $40,353 + $36,902 = $77,255 Panel E: Booking Plan Change in Number of room: 2 orders / week * 15 rooms / order * 12 weeks = 360 rooms Change in Revenue: Revenue = Change in Number of room * Profit each room = 360 rooms * ($75 - $15.49) = $21,423.6 Change in Income: Change in Net Income = Change in Revenue - Change in Expense = $21,423.6 - $5,000 = $16423 EXHIBIT 2 Braden’s proposal to open the resort during Off-Season (Highest Percent of Occupancy Rate of Plan) Contribution Margin Rooms $152118 Change in Fixed Cost Salary Desk Clerks (3) $36,000 Assistant $45,000 Maids (2) $19,200 Payroll taxes & fringe benefits $35,070 Repairs and Maintenance $25,000 Operating Profit ($8,152) Contribution Margin = Total Number of rooms * Contribution Margin per room = ($100 - $15.49) * 30 rooms / day * 150 days * 40% = $152,118 Read More