Good Night Motel

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Purpose: Name Assignment #1: Good Night Motel Background: * Justin McGregor, owner of Good Night Motel is offered a proposition from George Alward that would fill up all 30 units of the motel from Friday 10/26/12 – Saturday 10/27/12 * The renters are delegates to a church convention which fits the family-style reputation that the motel wants to maintain * Alward offered to pay $40/unit as opposed to the normal $80/unit * The dates that Alward wants are during the slow season where it struggled to fill up to ¼ of the rooms * In recent years, a further dip of an additional 7%-15% is expected in room occupancy * Revenues are expected to remain flat for the next several years Issues and Qualitative factors: * McGregor doesn’t want to take the deal because he says that Good Night barely broke even in the 2012 and is afraid that giving out these rooms for ½ price will be unfavorable * McGregor is also afraid that giving this deal might set future precedents Guidance: * A Cost Volume Profit (C-V-P) analysis should be done to determine breakeven point and contribution margins Computation: * McGregor’s take on the breakeven point in incorrect. He looked at the income statement and came in the conclusion that the motel only made $3,177 in 2012. * This is incorrect because depreciation is not a cash outflow and should not be considered. Total operating expense | $385,973.00 | less: depreciation | $54,700.00 | Total cash outflow | $331,273.00 | * He only needs to earn $331,273.00 in revenue to break even instead of the original $385,973.00 that he thought. He earned $389,150.00 which is well above that amount. * For the Contribution margin: I first found the CM for renting to Alward then I compared it to the CM to the normal projected business * For the normal business, I assumed ¼

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