Question

The Financial Manager of Aldorf Wastoria has prepared the following flexed budget

for 2023. The Aldorf is a large hotel, which can provide up to a maximum of 22,000
guest nights per year.
Capacity
No of Guests 15,400 17,600 19,800
£ £ £
Direct Costs 231,000 264,000 297,000
Selling overhead 1,318,800 1,338,600 1,358,400
Administration overhead 900,000 900,000 900,000
Total Cost 2,449,800 2,502,600 2,555,400
Due to the recent poor weather, the Sales Manager has suggested that 15,000
guests are a more realistic target for 2023. Based on this, what are the expected
total costs for 2023?

Answer 1

To determine the expected total costs for 2023 based on the revised target of 15,000 guests, we first need to determine which capacity level in the flexed budget is closest to 15,000 guests.

We can do this by calculating the difference between the number of guests in each capacity level and 15,000, and then choosing the capacity level with the smallest difference.

Capacity
No of Guests 15,400 17,600 19,800
Difference from 15,000 400 2,600 4,800

From the table above, we can see that the capacity level closest to 15,000 guests is the first one, with a difference of only 400 guests.

Next, we can use the direct costs and overheads for this capacity level to calculate the expected total costs for 15,000 guests:

Direct Costs = £231,000
Selling overhead = £1,318,800
Administration overhead = £900,000

Total Costs = Direct Costs + Selling overhead + Administration overhead
Total Costs = £231,000 + £1,318,800 + £900,000
Total Costs = £2,449,800

Therefore, the expected total costs for 2023 based on the revised target of 15,000 guests is £2,449,800.