Answer:
If the special offer earns a positive contribution margin, we should accept the special order.
Explanation:
Given that,
No. of suites in luxury hotel = 160
Regular suite rate = $210 per night per suite
Hotel’s cost per night = $135 per suite
Variable direct labor and materials cost = $36
Fixed cost = 99
Total cost per night per suite = $135
Contribution margin per night per suite:
= Room rate per night - Variable cost per night
= $94 - $36
= $58
Contribution margin from special offer:
= Contribution margin per night per suite × Number of nights × Number of suits
= $58 × 3 × 45
= $7,830
Management should accept the special offer.
When the company receives offer, the hotel is running at low season. occupancy rate is 55%
If the special offer earns a positive contribution margin, we should accept the special order.
Room rate is $94 for special order.
