Deck 12: Cost Information and Pricing

Question 1

Which of the following statements is untrue?

A) Factors such as the number of meals to be priced on a restaurant menu and the different room configurations offered in many hotels signify that pricing is a challenging aspect of hospitality management.
B) When the contribution percentage margin for beer sold in a bar is compared to room nights sold, it is evident that there is a greater discretionary price range when setting beer prices compared to room rates.
C) A highly price elastic service is one where a change in price results in a relatively high change in demand for the service.
D) Higher degrees of price elasticity provide a potential for more imaginative approaches to pricing strategy.
E) Low price elasticity signifies that there is scope to raise prices during the busy season.

Answer 1

B

Question 2

A hotel dropped its room rates from $100 to $80 and found that rooms sold per night increased by 25%. The hotel's price elasticity index is:

A) 1.25.
B) 0.8.
C) $20.
D) 20%.
E) 25%.

Answer 2

A

Question 3

Which of the following statements is untrue?

A) Product perishability can signify that it can be justified to set a product's selling price below its variable cost of production.
B) If using cost mark up pricing, setting the prices for a restaurant menu is more straight forward than setting beverage prices in a bar.
C) A percentage mark up on cost is not the same as a gross profit margin percentage.
D) Low price elasticity signifies that a hotel has scope to raise its room rate during the busy season.
E) Due to inconsistency of products, it can be hard for a hotel to conduct direct price comparisons with its competitors to the same degree as companies operating in the retail sector.

Answer 3

B

Question 4

Imagine your recently constructed 100 room hotel has determined that it will use the rule of a thousand to set room rates. The total cost of building the hotel was $15,000,000 and 20% of the infrastructure investment relates to non-accommodation hotel activities such as Food and Beverage. What price should be charged per room night?

A) $150.
B) $140.
C) $130.
D) $120.
E) $110.

Question 5

The Bellisimo Hotel has 20 rooms that are 125 square meters and 40 rooms that are 100 square meters. Both types of room run at a 70% occupancy level. The rooms manager is seeking a revenue of $1,474,200 for the 360 days that the hotel will be open next year. Based on room size, at what rate should the larger rooms be priced?

A) $120.50
B) $115.50
C) $112.50
D) $100.00
E) $90.00

Question 6

The SandCastle Hotel has thirty 42 square metre rooms that achieve an occupancy rate of 70% and forty 64 square metre rooms that achieve an occupancy rate of 60%. The hotel has a total room revenue target of $3,627 per day. What rate should be charged for a room night in one of the 42 square metre rooms?

A) $63.00
B) $96.00
C) $39.88
D) $48.96
E) $54.64

Question 7

The General Manager of the recently opened 30 room Taj Mahal Hotel has developed the following projected operating costs for the forthcoming year:
$\begin{array}{l}\text { Fixed costs: }\\\begin{array} { l r } \text { Salaries and wages } & \$ 250,000 \\\text { Maintenance } & 60,000 \\\text { Other costs } & \underline { 110,000 } \\\text { otal fixed costs } & \underline{\underline { \$ 420,000 }}\end{array}\end{array}$ The General Manager believes that if rooms are priced in the range of $100-$90, 10,000 room nights will be sold next year. All rooms are to be priced at the same rate. Capital invested in the hotel is $2,000,000 and the General Manager's target return on investment is 25%. In order to achieve this target rate of return, what price should be charged per room night sold?

A) $100
B) $99
C) $98
D) $97
E) $95

Question 8

In its foyer shop, the Pacific Plaza hotel has a policy of keeping the cost of merchandise sold at 30% of selling prices. What selling price would be put on an item that cost $9?

A) $11.70
B) $30.00
C) $12.00
D) $25.00
E) $21.00

Question 9

To apply the required rate of return approach to setting room rates, you need to be provided with all of the following items except one. Identify the item not needed.

A) A way to determine total target profit
B) Number of projected room sales
C) Variable cost per room sold
D) Number of rooms in the hotel
E) Fixed costs.

Question 10

A pricing philosophy that is designed to maximise revenue per available room and involves sales and marketing management developing pricing plans that recognise factors such as whether a reservation pertains to a quiet or busy season, weekday or weekend and also the nature of a customer's market segment (e.g., tour group booking vs a single transient guest) is known as.

A) Customer focused pricing
B) Revpar pricing
C) Contribution pricing
D) Yield management
E) Market pricing

Question 11

A hotel increased its room rates from $100 to $110 and found that rooms sold per night decreased by 8%. The hotel's price elasticity index is:

A) 1.25.
B) 0.8.
C) $10.
D) 20%.
E) 25%.

Question 12

Which of the following statements is untrue?

A) If a price change is made for a service with low price elasticity, there is a relatively low change in the demand for the service.
B) Pricing strategies to take into account the extent to which a product or service is perishable.
C) If a product is highly perishable, a case can be made for dropping its selling price below its variable cost.
D) Cost plus pricing involves identifying costs that are traceable to the item to be sold and marking the cost up by a multiple in order to determine its selling price.
E) Compared to pricing meals on a restaurant menu, pricing beverages on a cost plus basis is relatively difficult.

Question 13

The Evasogrande Hotel has 30 rooms that are 110 square meters and 50 rooms that are 120 square meters. Both types of room run at a 75% occupancy level. The rooms manager is seeking a revenue of $2,008,800 for the 360 days that the hotel will be open next year. Using a relative room size pricing approach, determine the nightly rate that should be charged for the larger rooms.

A) $96
B) $98
C) $100
D) $102
E) $104

Question 14

Imagine your recently constructed 120 room hotel has determined that it will use the rule of a thousand to set room rates. The total cost of building the hotel was $15,200,000 and 25% of the infrastructure investment relates to non-accommodation hotel activities such as Food and Beverage. What price should be charged per room night?

A) $90
B) $95
C) $100
D) $105
E) $110

Question 15

Which of the following statements is untrue?

A) The application of pricing strategies designed to maximize revpar is often referred to as 'yield management'.
B) Yield management's main focus is on maximising occupancy levels.
C) Yield management focuses on maximising revenue.
D) Yield management does not include a consideration of costs.
E) Yield management is concerned with matching pricing to demand factors.