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.
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:
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 seven 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.
This is a short video interview with Renee Castellano, the General Manager of the Las Vegas Burburr. The General Manager is responsible for the entire property, including the Blue Tower, and will make the recommendation to corporate on whether Blue Tower Premier continues.
Watch the video interview with Renee Castellano, General Manager.This is a short video interview with Marcus Bell, the Controller of the Las Vegas Burburr. The Controller is responsible for the property's accounting and prepared the Premier cost report shown in Exhibit 1.
Watch the video interview with Marcus Bell, Controller.| 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 | $20 per Premier night | Estimated by F&B and Retail |
| Welcome amenity and in-room Premier extras | $6 per Premier night | |
| Contracted car service | $12 per Premier night | Contract price per stay converted to per night |
| Evening turndown service labor | $6.60 per Premier night | Standard: 0.30 hour at $22 per hour |
| Variable room cost (housekeeping, laundry, utilities, supplies) | $27 per occupied room-night | Blue Tower standard for any occupied room |
| Premier desk and concierge staffing | $210,000 per year | Three agents, two shifts, seven days |
| Premier marketing and website | $90,000 per year | |
| Blue Tower fixed operating costs, allocated | $25 per occupied room-night | 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 |
Exhibit 1 and the two videos from Part 1 stay on screen while you work this part.
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?
| Assumption | Amount |
|---|---|
| Contribution margin per Premier night (as computed in Part 2) | $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?
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?
This is a short video interview with Priya Nair, the Director of Sales and Convention Services. The Director of Sales and Convention Services is responsible for group and convention business, including the dental congress proposal summarized in Exhibit 3.
Watch the video interview with Priya Nair, Director of Sales and Convention Services.This is a short video interview with Tom Okafor, the Director of Rooms. The Director of Rooms is responsible for the hotel's guest rooms, including the Blue Tower and the Premier desk, and Premier's revenue and package costs roll into the Rooms results.
Watch the video interview with Tom Okafor, Director of Rooms.| 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?
Question 6. If instead the group insists on the October dates, what opportunity cost must be added to the analysis?
Question 7. What should Burburr do about the group's proposal?
This is a short video interview with Lupe Hernandez, the Executive Housekeeper. The Executive Housekeeper is responsible for housekeeping throughout the hotel, including the employees who provide Premier's evening turndown service.
Watch the video interview with Lupe Hernandez, Executive Housekeeper.| 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?
Question 9. What is the labor efficiency variance for turndown service in the first quarter?
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?
| 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 3) | 22,000 |
| Annual fleet operating costs (drivers, charging, insurance, maintenance) | $90,000 |
| Required rate of return on equipment purchases (set by corporate) | 10% |
| Present value of an annuity of $1 for 5 years | 8%: 3.993 10%: 3.791 12%: 3.605 |
Question 11. What is the net present value of the fleet purchase?
| Contribution margin per Premier night | $32.40 |
| Break-even volume | 9,260 room-nights |
| Expected annual volume | 22,000 room-nights |
| July group result | $111,360 |
| October opportunity cost | $155,700 |
| October net effect | ($44,340) |
| First-quarter volume shortfall in contribution margin | $44,388 U |
| Turndown labor rate, actual | $25 per hour |
| Turndown labor rate, standard | $22 per hour |
| Turndown labor efficiency variance | $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?
Question 13. Which TWO pieces of evidence most strongly support continuing Blue Tower Premier? (Select two.)
Question 14. What is the most important risk management should weigh even though it is not captured in the numbers?
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?