Skyview Manor is a ski resort located in rural Vermont that is open annually from December 2nd to the last day of March. The hotel has a total of 80 rooms, all of which are generally occupied on the weekends during ski season, with 50 to 60 being occupied on weeknights (averaging at 80% occupancy). Rooms in the west wing rent for $15 for single occupancy, and $20 for double occupancy. Rooms in the east wing, which boast impressive views, rent for $20 and $25.
The manager, Mr. Kacheck, suggests to the owners of Skyview Manor that they should keep the west wing of the hotel open all year to avoid the off-season losses that reduce the profits accrued during ski season. Although the room rates will have to be lowered to $10 and $15 for single and double occupancy, Kacheck believes that they can attain an average occupancy rate of between 20-40% during the off-season. Their odds of achieving the higher end of that estimate can be increased if the owners effectively budgeted to invest $4,000 for year-round advertising and $40,000 for the addition of a heated swimming pool.
Under the guidelines of activity-based costing, the costs of labor, supplies, insurance, and utilities will all increase if the west wing of Skyview Manor operates year-round. There will also be additional costs related to the addition of a swimming pool including heating, maintenance, insurance, taxes, and a lifeguard. However, should the owners decide to take Kacheck's advice, depreciation and property taxes will not be affected by year-round operations.
The questions posed at the end of this case require the reader to calculate the monetary outcome of several alternatives to Kacheck's proposal, as well as the potential benefit/loss presented by year-round operations. What this is meant to teach the reader is that, though keeping the hotel open year-round initially seems like the logical solution to accruing supplemental profit, this model requires a significant amount of additional spending that may actually render it counter-productive.
Shank, J. K. (1996). Skyview Manor.Cases in cost management: a strategic emphasis (pp. 213-214). Cincinnati, Ohio: South-Western College Pub.