Faculty demo of the MyLab item. Numbers shown are Version 1 of 20. Reload the page to start over.
Learning Objective: Comprehensive Case: Use managerial accounting information to make a business recommendation (Chapters 2, 6, 7, 8, 9, 10, 11, 12) Availability: Homework Origin: Publisher
This comprehensive case walks you through one management decision at the Las Vegas Burburr, from understanding what a new program costs through a final recommendation, so you can focus on which information matters and why the same cost can be treated differently in different decisions.
Blue Tower Premier: A Comprehensive Case
Burburr Resorts & Hotels Corporation — Las Vegas Burburr Burburr Resorts & Hotels Corporation is a fictitious corporation.
You have followed Burburr Resorts & Hotels Corporation throughout this course. Its Las Vegas Burburr includes five hotel towers, casinos, restaurants, nightclubs, a 3,000-seat entertainment venue, and a large convention facility. Its Blue Tower reopened after a $150 million renovation with 550 upgraded rooms and a standard rate of about $200 per night.
On January 1 of this year, the Las Vegas Burburr launched Blue Tower Premier as a one-year pilot. Premier is sold as an upgrade to guests staying in the Blue Tower. For a single nightly rate, a Premier guest receives:
a Blue Tower guest room
brunch for two each morning at the Over-the-Top Buffet
a $40 resort credit each night, usable at Burburr restaurants and shops
private check-in at the Premier desk and access to the Premier concierge team
an in-room welcome amenity and evening turndown service
car service between the airport and the hotel
It is now mid-April. Renee Castellano, General Manager of the Las Vegas Burburr, has to tell corporate by the end of the month whether Premier will continue. You are an analyst in the Controller's office. She has asked you to look at the original decision, at a group proposal that arrived last week, at the first quarter's results, and at what to do about the car service, and then to tell her what you would do.
Instructions. Work through the six parts in order; each part is submitted before the next opens. Watch each video when it appears: managers explain facts you will need that are not in the exhibits. All information needed to complete the case is in the case. Round money to the nearest dollar and nights to the nearest whole night unless a question says otherwise. Later parts redisplay any earlier figures you need.
Faculty demo note. Beneath each video link, this demo lists the facts that video delivers so you can see what students will hear. Students see only the video; those lists are production notes and do not appear on the student page. As in MyLab, only Part 1 is open at first and each part opens when the one before it is submitted. Use Show all parts at the top to see every part at once.
Part 1: What Premier costs. Watch the two videos, then answer Questions 1 and 2.
Production noteFacts delivered in this video (not shown to students)
Premier is sold only to guests already staying in the Blue Tower; it is not expected to change occupancy. "The room was going to be sold and cleaned either way."
The Blue Tower runs above 90% occupancy; the strategy is more revenue per guest, not more guests.
The renovation is finished and paid for; it is not part of this decision.
The Premier desk (three agents, two shifts, seven days) is staffed whether Premier sells ten nights a day or sixty.
The three desk positions were created for Premier; if Premier were shut down, the desk would close and the positions would go with it.
Corporate expects a recommendation by the end of April.
Production noteFacts delivered in this video (not shown to students)
Every package cost was put on a per-Premier-night basis; the car service is billed per stay and was divided by average length of stay.
Weekday brunch runs well under capacity with the same cooks and servers, so a Premier guest costs the buffet only the food; the $50 list price is what a walk-in pays.
The $40 credit costs Burburr what guests actually redeem, not its face value.
The marketing line is Premier's own campaign and web pages: the same spend at forty nights a day or sixty, and it ends if Premier ends.
The allocated tower fixed cost and the renovation depreciation are corporate's reporting convention; nobody is hired or laid off over those lines and they stay on the tower's books whether Premier exists or not.
Corporate sets the rate of return required on equipment purchases such as vehicles; it is on the fleet proposal.
Exhibit 1 — Blue Tower Premier: cost report used for the launch decision
Item
Amount
Note
Blue Tower standard rate (average)
$200 per room-night
Rate paid by a guest who does not buy Premier
Blue Tower Premier rate
$295 per room-night
All-in rate for a Premier guest
Over-the-Top Buffet brunch, list price
$50 per person
Price paid by walk-in customers
Buffet food cost for Premier brunch
$18 per Premier night
Food and supplies for two brunches
Resort credit, face value
$40 per Premier night
Credit issued to the guest
Cost of goods and services redeemed with the credit
Share of the tower's $5,000,000 annual fixed operating costs
Depreciation on Blue Tower renovation
$10,000,000 per year
Straight-line on the $150 million renovation
Director of Rooms, salary
$145,000 per year
Premier reports to the Director of Rooms
Question 1. For each item, indicate how it should be treated when deciding whether Blue Tower Premier should continue. Use what the managers told you about how Premier is sold. (Select from the drop-down menus.)
Item
Treatment
a. Buffet food cost for Premier brunch
b. Premier desk and concierge staffing
c. Variable room cost of $27 per occupied room-night
d. Allocated Blue Tower fixed operating costs, $25 per room-night
Key: a Variable, relevant · b Fixed, relevant (avoidable if Premier ends) · c Not relevant · d Not relevant
Question 2. What is the contribution margin Burburr earns on one Premier room-night, compared with the same guest staying in the Blue Tower without Premier?
Key: a. $95 − ($18 + $20 + $6 + $12 + $6.60) = $32.40. Only the premium is incremental revenue.
Part 2: Does the program pay for itself? (opens after Part 1 is submitted)
Exhibit 2 — Premier program assumptions used for the launch budget
Assumption
Amount
Contribution margin per Premier night (as computed in Part 1)
$32.40
Premier desk and concierge staffing, annual
$210,000
Premier marketing and website, annual
$90,000
Expected Premier room-nights per year
22,000
Blue Tower occupied room-nights per year (550 rooms, 92% occupancy)
about 184,700
Question 3. How many Premier room-nights per year must Burburr sell for the Premier program to break even?
Key: a. $300,000 ÷ $32.40 = 9,259.3, rounded up to 9,260.
Question 4. Break-even is 9,260 Premier room-nights (redisplayed after you submit Question 3); expected volume is 22,000. Which statement best describes what these figures tell management?
Key: a.
Part 3: The Western Regional Dental Congress. Watch the two videos, then answer Questions 5 through 7.
Production noteFacts delivered in this video (not shown to students)
The dental congress wants its VIP attendees in the Blue Tower with the full Premier package, three nights each, at one all-in group rate below the Premier rate.
The group requires a hospitality suite and a dedicated coordinator for the three days; Burburr spends that money only if the group comes.
Two date windows: second week of July or second week of October; the group prefers October.
Assume the group's attendees use Premier exactly like regular Premier guests (brunch, credit, car service, turndown).
Production noteFacts delivered in this video (not shown to students)
Second week of July: empty Blue Tower rooms every night; the group fits without turning anyone away.
Second week of October: the Blue Tower sells out every night; every room held for the group is a room that would have been sold to a regular guest.
October guests are leisure travelers booking direct at the standard rate, and almost none of them add Premier.
Premier could not be bought online until February 15; once it could, bookings picked up and March came in on plan. The first-quarter shortfall is a launch problem, not a demand problem.
Premier's revenue and costs sit in the Rooms division P&L; the Premier desk manager reports to Tom; turndown staff are Housekeeping's.
The contracted car service has had late pickups and no-shows and cannot stay as it is. Two fixes: the contractor has offered written service guarantees with penalties at the same rate (two other vendors quote about the same), or Burburr buys its own vehicles and hires drivers.
Exhibit 3 — Group proposal summary
Term
Amount
Room-nights requested (Blue Tower, all with Premier)
900 (300 rooms × 3 nights)
Group's proposed all-in rate per room-night (room plus Premier)
$230 (Premier rate of $295 less a $65 group discount)
One-time cost of the hospitality suite and dedicated coordinator the group requires
$15,000
Dates proposed by the group
Second week of July, or second week of October
Blue Tower standard rate (non-Premier guest)
$200
Variable room cost
$27 per occupied room-night
Premier variable costs per night (brunch, credit, amenity, car service, turndown)
$62.60
Question 5. If Burburr accepts the group for the July dates, by how much will the Las Vegas Burburr's operating income change?
Key: a. ($230 − $27 − $62.60) × 900 − $15,000 = $111,360. New room-nights, so the $27 is incremental here.
Question 6. If instead the group insists on the October dates, what opportunity cost must be added to the analysis?
Key: a. ($200 − $27) × 900 = $155,700, the contribution margin of the displaced regular guests. October net: ($32.40 − $65) × 900 − $15,000 = ($44,340).
Question 7. What should Burburr do about the group's proposal?
Key: a.
Part 4: The first quarter. Watch the video, then answer Questions 8 through 10.
Production noteFacts delivered in this video (not shown to students)
The plan assumed new hires at the starting wage for the evening turndown shift; new housekeepers have been leaving before ninety days.
Lupe staffed turndown with her experienced housekeepers, who earn more per hour, with some overtime on busy nights. It was her decision, and she would make it again.
Experienced staff turn a room down in much less time and are not called back to fix anything; hours used came in under what the plan allowed.
She asks that both sides of that decision be looked at together.
Exhibit 4 — Blue Tower Premier: first-quarter performance report (January–March)
Static budget
Actual
Premier room-nights
5,500
4,130
Contribution margin per Premier night (budgeted)
$32.40
Premier contribution margin
$178,200
Turndown labor standard
0.30 hour per Premier night at $22 per hour
Turndown labor hours worked
1,120
Turndown labor: average wage rate paid
$25 per hour
Turndown labor cost
$28,000
Question 8. Premier contribution margin for the quarter came in well below the static budget of $178,200. Which statement best explains the shortfall and what it means for the annual volume estimate of 22,000 room-nights?
Key: a.
Question 9. What is the labor efficiency variance for turndown service in the first quarter?
Key: a. Standard hours allowed = 0.30 × 4,130 = 1,239; (1,120 − 1,239) × $22 = $2,618 F. Option b uses budgeted nights (1,650 standard hours).
Question 10. Turndown labor was paid an average of $25 per hour against a $22 standard, and used fewer hours than the standard allowed. Taken together, what do the turndown labor results most likely indicate?
Key: a.
Part 5: The car service. Answer Question 11.
Exhibit 5 — Premier vehicle fleet proposal
Item
Amount
Purchase of four electric luxury SUVs (delivered and equipped)
$720,000
Useful life / salvage value
5 years / none
Contracted car service cost that would be avoided
$12 per Premier night
Expected Premier room-nights per year (from Part 2)
Part 6: Your recommendation. Answer Questions 12 through 15.
Your results so far (redisplayed from your generated data)
Demo note. This table shows the Version 1 figures from the answer key. In MyLab it carries forward the student's own generated data and answers. In this demo it does not change with your answers above, so the correct figures appear here even if you answered a question incorrectly.
Contribution margin per Premier night
$32.40
July group result
$111,360
Break-even / expected volume
9,260 / 22,000
October opportunity cost / net
$155,700 / ($44,340)
Q1 volume shortfall in contribution margin
$44,388 U
Turndown labor: rate $25 vs $22; efficiency
$2,618 F
Fleet NPV at 10%
($60,366)
Question 12. Based on everything you have analyzed and what management told you, which recommendation to Ms. Castellano is best supported?
Key: b in this version (NPV negative). In the 9 positive-NPV versions the key is a. Option c is wrong in every version.
Question 13. Which TWO pieces of evidence most strongly support continuing Blue Tower Premier? (Select two.)
Key: a and b.
Question 14. What is the most important risk management should weigh even though it is not captured in the numbers?
Key: a.
Question 15. Why can Burburr correctly accept the dental group in July, decline the same group in October, and still conclude that Premier as a program is worthwhile?