Concept explainers
Prepare Budgeted Financial Statements
HomeSuites is a chain of all-suite, extended-stay hotel properties. The chain has 15 properties with an average of 200 rooms in each property. In year 1, the occupancy rate (the number of rooms filled divided by the number of rooms available) was 70 percent, based on a 365-day year. The average room rate was $180 for a night. The basic unit of operation is the “night,” which is one room occupied for one night.
The operating income for year 1 is as follows:
In year 1, the average fixed labor cost was $400,000 per property. The remaining labor cost was variable with respect to the number of nights. Food and beverage cost and miscellaneous cost are all variable with respect to the number of nights. Utilities and
At the beginning of year 2, HomeSuites will open three new properties with no change in the average number of rooms per property. The occupancy rate is expected to remain at 70 percent. Management has made the following additional assumptions for year 2:
- The average room rate will increase by 5 percent.
- Food and beverage revenues per night are expected to decline by 20 percent with no change in the cost.
- The labor cost (both the fixed per property and variable portion) is not expected to change.
- The miscellaneous cost for the room is expected to increase by 25 percent, with no change in the miscellaneous revenues per room.
- Utilities and depreciation costs (per property) are
forecast to remain unchanged. - Management costs will increase by 8 percent, and marketing costs will increase by 10 percent.
- Other costs are not expected to change.
Required
Prepare a
Prepare a budgeted income statement for year 2.
Explanation of Solution
Budgeted income statement:
The budgeted income statement shows the overall profit and loss of the business in the budgeted period. It includes the sales revenue and direct and indirect cost of the production to calculate the operating profit of the budgeted period.
Prepare a budgeted income statement:
Company H Budgeted Income Statement For year 2 | ||
Particulars | Amount | Total amount |
Sales revenue (1): | ||
Lodging | 173,842,200 | |
Food & beverage | 18,396,000 | |
Miscellaneous | 9,198,000 | |
Total revenue | 201,436,200 | |
Operating costs: | ||
Labor (4) | 53,190,000 | |
Food & beverage (1) | 16,556,400 | |
Miscellaneous (1) | 13,797,000 | |
Management (2) | 2,700,000 | |
Utilities (3) | 45,000,000 | |
Depreciation (3) | 12,600,000 | |
Marketing (2) | 27,500,000 | |
Other costs | 8,000,000 | |
Total operating cost | 179,343,400 | |
Operating profit | 22,092,800 |
Table: (1)
Thus, the operating profit is $22,092,800 for company H for year 2.
Working note 1:
Calculate the revenue and costs for year 2:
Particulars |
Total nights in a year 2 (8) (a) |
Cost per night (5) (b) |
% change (c) |
Total amount |
Sales revenue: | ||||
Lodging | 919,800 | 180 | 1.05 | $173,842,200 |
Food & beverage | 919,800 | $25 | 0.8 | $18,396,000 |
Miscellaneous | 919,800 | $10 | - | $9,198,000 |
Costs: | ||||
food & beverage | 919,800 | $18 | - | $16,556,400 |
Miscellaneous | 919,800 | $12 | 1.25 | $13,797,000 |
Table: (2)
Working note 2:
Calculate the management and marketing costs:
Particulars |
Amount (a) |
% change (b) |
Total amount |
Costs: | |||
Management | 2,500,000 | 1.08 | 2,700,000 |
Marketing | 2,500,000 | 1.1 | 2,750.000 |
Table: (3)
Working note 3:
Calculate the utilities and depreciation:
Particulars |
Amount (a) |
Number of property in year 1 (b) |
Cost per property |
Number of property in year 2 (d) |
Total cost in year 2 |
Costs: | |||||
Utilities | $3,750,000 | 15 | $250,000 | 18 | $4,500,000 |
Depreciation | $1,050,000 | 15 | $70,000 | 18 | $1,260,000 |
Table: (4)
Working note 4:
Calculate the labor cost:
Particulars |
Cost per property (a) |
Number of property (b) |
Total nights in a year 2 |
Variable labor cost per night (d) |
Total variable cost |
Total cost |
Labor cost | $400,000 | 18 | $7,200,000 | 919,800 | $45,990,000 | $53,190,000 |
Table: (5)
Working note 5:
Particulars |
Amount (a) |
Total nights in a year (7) (b) |
Cost per night |
Revenue: | |||
Food & beverage | $19,162,500 | 766,500 | $25 |
Miscellaneous | $7,665,000 | 766,500 | $10 |
Costs: | |||
Food & beverage | $13,797,000 | 766,500 | $18 |
Miscellaneous | $9,198,000 | 766,500 | $12 |
Table: (6)
Working note 6:
Calculate average variable cost per unit:
Particulars |
Total fixed labor cost (a) |
Labor cost for year 1 (b) |
Net labor cost |
Total nights in a year (d) |
Cost per night |
Labor cost | $6,000,000 | $44,325,000 | $38,325,000 | $766,500 | $50 |
Table: (7)
The fixed labor cost per property is $400,000, and there are 15 properties so the total fixed labor cost will be $6,000,000
Working note 7:
Calculate the number of nights for year 1:
Number of properties (a) |
Number of rooms in each property (b) |
Days in a year (c) |
Occupancy rate (d) |
Total nights in a year |
15 | 200 | 365 | 70% | 766,500 |
Table: (8)
Working note 8:
Calculate the number of nights for year 2:
Number of properties (a) |
Number of rooms in each property (b) |
Days in a year (c) |
Occupancy rate (d) |
Total nights in a year |
18 | 200 | 365 | 70% | 919,800 |
Table: (9)
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Chapter 13 Solutions
Fundamentals Of Cost Accounting (6th Edition)
- Relevant data from the Poster Companys operating budgets are: Additional data: Capital assets were sold in January for $10,000 and $4,500 in May. Dividends of $4,500 were paid in February. The beginning cash balance was $60,359 and a required minimum cash balance is $59,000. Use this information to prepare a cash budget for the first two quarters of the yeararrow_forwardCash budget The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent 50,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of September 1 include cash of 40,000, marketable securities of 75,000, and accounts receivable of 300,000 (60,000 from July sales and 240,000 from August sales). Sales on account for July and August were 200,000 and 240,000, respectively. Current liabilities as of September 1 include 40,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of 55,000 will be made in October. Bridgeports regular quarterly dividend of 25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of 50,000. Instructions Prepare a monthly cash budget and supporting schedules for September, October, and November. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?arrow_forwardBefore the year began, the following static budget was developed for the estimated sales of 50,000. Sales are higher than expected and management needs to revise its budget. Prepare a flexible budget for 100,000 and 110,000 units of sales.arrow_forward
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