St Ashton Resorts Operates High-End All-Inclusive Vacation D ✓ Solved
St Ashton Resorts Operates High End All Inclusive Vacation Destinati
St. Ashton Resorts operates high-end, all-inclusive vacation destinations in 12 locations, including Maui, Hawaii; Los Cabos, Mexico; and the Great Barrier Reef, Australia. At St. Ashton properties, the guest pays a flat daily rate that includes lodging, all meals and beverages, golf, and spa treatments. Each resort is treated as a profit center, and the managers of the resort receive bonuses for achieving or beating the budget.
Under the profit center approach, each resort management team is rewarded based on the difference between budgeted and actual profits. Last year, St. Ashton switched its budgeting methodology. Previously, the CFO’s office of St. Ashton set each property’s annual budget based on the projected occupancy rate and expected costs. The annual budget was then broken down into monthly budgets adjusted for the number of days in the month and any seasonal fluctuation in the occupancy rate. The new CFO felt the old budget approach did not take into account the dynamic nature of the tourism market, leading to an outdated budget shortly after the new year began.
The new budgeting system for the current fiscal year is a monthly rolling model. Before the current fiscal year began, the CFO’s office sets the spending targets per guest room occupied for each department in each resort, along with annual budgets for each department’s fixed costs. The annual departmental budgets are then divided by 365 and multiplied by the number of days in the month to form monthly budgets. The following table illustrates the new budget model for the St. Ashton Maui Resort for the current year.
Required: a. What is the St. Ashton Maui Resort’s break-even occupancy rate? b. Prepare the St. Ashton Maui Resort monthly budget for October for the current year before the current year begins. c. Prepare the performance report comparing actual and budgeted results for St. Ashton Maui Resort for October. d. Evaluate the performance of the St. Ashton Maui Resort management team. e. Discuss possible reasons for the declining occupancy rate at the St. Ashton Maui Resort.
Paper For Above Instructions
The St. Ashton Maui Resort has been an attractive destination in the Hawaiian Islands, leveraging its luxury amenities and inclusive offerings. However, the recent alterations in the budgeting process and the market dynamics have raised several questions concerning profitability and occupancy rates, which are critical for the resort's sustained success.
Break-Even Occupancy Rate Calculation
The break-even occupancy rate can be calculated with the formula: Break-even occupancy rate = Fixed costs / (Average room rate – Variable costs per room). To determine the fixed costs and variable costs, detailed financial data must be assessed which are typically outlined in the budget model set by the resort.
Assuming the fixed costs per month are $150,000 and variable costs per room per day are $300, the average room rate is set at $1,700. This means the occupancy rate can be calculated as:
Break-even occupancy rate = $150,000 / ($1,700 - $300) = $150,000 / $1,400 = 107.14 rooms (rounded up to 108)
Given the resort has 200 rooms, the break-even occupancy rate of 108 rooms translates to an effective percentage of 54% occupancy required per day to cover fixed and variable costs.
St. Ashton Maui Resort Monthly Budget for October
For the current fiscal year, to prepare the monthly budget for October (31 days), we'll apply the newly adopted budgeting framework. Assuming fixed costs are aggregated as mentioned, we’ll distribute these costs across the month based on daily expectations.
Monthly budget outline:
- Fixed Costs: $150,000
- Variable Costs (Per Room): $300
- Number of Available Rooms: 200
- Projected Occupancy Rate: 70% (including seasonal adjustments)
- Total Guest Days: 200 Rooms x 31 Days x 0.70 = 4,340 Guest Days
- Revenue Goal: 4,340 x $1,700 = $7,378,000
- Total Variable Costs: 4,340 Guest Days x $300 = $1,302,000
The total budget for October therefore reflects a revenue target and adequate allocation of fixed and variable resources to meet projected occupancy expectations.
Performance Report
To evaluate the resort’s performance for October, we will compare actual results against the established budget. Assuming St. Ashton Maui achieved 10,500 guest days, generated revenues of $17,850,000, and total expenses of $15,200,000, the performance report will look like this:
| Item | Budgeted Amount | Actual Amount | Variance |
|---|---|---|---|
| Guest Days | 4,340 | 10,500 | +6,160 |
| Revenue | $7,378,000 | $17,850,000 | +$10,472,000 |
| Total Expenses | $1,302,000 | $15,200,000 | -$13,898,000 |
| Net Income | $6,076,000 | $2,650,000 | -$3,426,000 |
Managerial Evaluation
The performance report indicates an upside in guest days; however, the expenses range significantly higher than budgeted, hinting at possible mismanagement of costs. The variance in expenses is concerning and highlights a disconnect between occupancy forecasts and actual cost outcomes. Managers must analyze where the costs intensified—whether through overstaffing, resource wastage, or other inefficiencies in service delivery.
Occupancy Rate Decline Reasons
The declining occupancy rate could stem from several factors. The competitive landscape in Hawaii has become increasingly saturated with new luxury resorts, which often offer promotional pricing or unique packaging that appeals to the luxury traveler market. The shift in traveler behavior post-pandemic and differing expectations regarding amenity value could also contribute. St. Ashton’s marketing may need reevaluation to appropriately target distinct demographic segments who are currently gravitating toward newer resorts.
Overall, the need for an agile budgeting system and accurate market analysis is paramount for the St. Ashton Maui Resort to navigate the challenges ahead and optimize profitability while addressing the competitive threats present in the area.
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