Exercise 19-13 variable cost analysis for a special order lo a1 grand garden is a luxury hotel with 160 suites. its regular suite rate is $210 per night per suite. the hotel’s cost per night is $135 per suite and consists of the following. variable direct labor and materials cost $ 36 fixed cost [($5,770,000/160 suites) ÷ 365 days] 99 total cost per night per suite $ 135 the hotel manager received an offer to hold the local bikers’ club annual meeting at the hotel in march, which is the hotel’s low season with an occupancy rate of under 55%. the bikers’ club would reserve 45 suites for three nights if the hotel could offer a 55% discount, or a rate of $94 per night. the hotel manager is inclined to reject the offer because the cost per suite per night is $135. required: prepare an analysis of this offer for the hotel manager.

Fanning company is considering the addition of a new product to its cosmetics line. the company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. relevant information and budgeted annual income statements for each of the products follow. skin cream bath oil color gel budgeted sales in units (a) 110,000 190,000 70,000 expected sales price (b) $8 $4 $11 variable costs per unit (c) $2 $2 $7 income statements sales revenue (a × b) $880,000 $760,000 $770,000 variable costs (a × c) (220,000) (380,000) (490,000) contribution margin 660,000 380,000 280,000 fixed costs (432,000) (240,000) (76,000) net income $228,000 $140,000 $204,000 required: (a) determine the margin of safety as a percentage for each product. (b) prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. (c) for each product, determine the percentage change in net income that results from the 20 percent increase in sales. (d) assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? (e) assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?