TallTree2 Hotel Casino

5 Pages   |   1,210 Words
  1. Should the departments be run as profit centres? Explain.

The department like of rooms, food and the beverages were used as the complementary by the TallTree2 Hotel Casino in order to ensure better facility to the customers who are going to gamble in Casino. The main purpose of these departments was to maximize the revenue generated by the Casino gaming. As the customer would feel comfortable to have the food, beverages and room at the same place, where they were gambling. Now doubt there departments are successful in satisfying the customers and increasing the revenue generated by the gaming in the casino. But they would be used as the profit centers if they are more profitable in themselves as compared to their impact on the overall revenue generation, from the gaming in casino.

 

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Thus the answer to the question of whether the departments should be made profit centers or not depends, upon the revenue generated by these departments after satisfying the costs related to them. Moreover by reviewing the progress of the departments it was clear that the department would be able to generate greater profits if they work as Profit Centers. The reason to the argument can be consider, as it was written in the text that the food department facing a loss of 15%. And the complementary food sales which were made to the casino gamblers constitute 20% of the whole sales by the restaurant which is a considerable amount. Moreover department could earn more profit if it was made independent to set the prices for the complementary sales according to the demand of the products. Furthermore the department of rooms would also earn greater profits than it did when used as complementary to Casino. As during the times of high demand, mostly over the weekends. The rooms could be charged for $145 per night, but they had to be charged at $45 for the Casino customers at the discounted Casino rate, as complementary. Consequently these reasons prove that it would be more profitable to use the departments of the Rooms and Food as the profit centers because they could earn greater profits than they could, when used as complementary.

Apart from this the department of beverages was good and it should remain as complementary to Casino. As the low prices of the beverages would appeal the customers to drink more, and when they would drink more, they would gamble more, as shown by history.
  1. Evaluate the items in Bill’s report specifically addressing the suite and room comps and hotel overhead.

Bills report compares the projected and actual contribution of the items to the overall revenue generated from the special events, Stars and Stripes. As it is displayed that the expected number of the guests was 100 but in actual 171 guests came. This shows that Bill underestimated the demand of Casinos on the special events. Although special events were organized in the slow period but still the demand was more than the estimation. Subsequently the revenue generated by the Entry fees was also greater than the estimation by $9159= $22059-$12900. Apart from this the complementary rooms that were reserved by the management on estimation, for the Special event, Stars and Stripes were more than the actual rooms used. Thus the revenue related to the rooms was also overstated.

It was expected that the customer would not pay for the suites, but in real 4 suites were paid by the customer. It was quite wrong estimation by the management. As they considered not even a single suite to be paid by the customers. Thus the total actual revenue generated by the Star and Stripes event was $8489(=$30119-$21630), more than the estimation. Coming towards the costs related to the special event. The room and suite comps catch the sight as their actual values show significant variation from the expected values. The criteria of the giving comp in the TallTree2 Hotel Casino were how well the customer knows the casino. The actual suite Comps were quite less than the expected values. This showed that the customer that paid for the suites were not well known by the Casino and vice versa. Moreover the actual room comps were more than the estimated value which shows that the customers that paid for the room for night were mostly well known by the Casino. Furthermore the total costs related to the special event were more than the estimated value by $8566(=$39005-$30439). Thus in the Bills report it can be seen that the special event was not profitable. Rather it was more costly than the estimation but the deviation of the actual cost of the event from the estimated value was negligible.
 
  1. Was the Stars and Stripe event profitable? Show your calculations.

 
The Stars and Stripe event was profitable as it can be seen that it’s cost was less than its revenue. This special event was able to generate $129 per player for 171 customers. Moreover as this event was organized in the slow period when the main casino was work slowdown. Thus it was preferable to have the special event like the Stars and Stripes. The further calculations can be shown as
 
Revenue
Slot Handle                   $1857624                                 
Pit drop                                                                                                                       $82045
Keno Write                                                                                                                 $35697
Depart. Net Income
Slots (2.1% of Handle)                                                                                               $39010
Pit (12% of Drop)                                                                                                       $9845
Keno (125 of the Write)                                                                                              $4284
Net Income                                                                                                                 $53139
Minus the Event Cost                                                                                                 $8886
Event Profit                                                                                                               $44253
 
  1. Evaluate Bill’s argument about displacement costs. When should they be used? 

Bill Argument about the displacement Costs was quite solid. As the displacement costs are those which are incurred due to certain special event. When the regular revenue generating activity is hindered due to the activities of the special event. For example, the casino used 171 slot machines for a special event like this slot tournament; therefore these machines were out of commission for regular players, and potential revenues were lost. Thus this cost should be considered in calculating the total costs, as the slot machines which were used in the tournament could generate the revenue of $60 per day per machine, which now are not generating the revenue, thus incurring costs. As it was declared by the Hotel manager Dana Sawyer that the hotel capacity is more crowded than the food and the beverages departments. And hence it is very difficult to forego the opportunity to rent the hotel rooms at the full cost. Whereas it is more costly to use the rooms for the special events and give discount to the customers. Thus the displacement Costs should be used at the times of greater demand as it would be more profitable in that times to rent the rooms at the full rates than the discounted rates. For instance room rates in July runs from $49 up to $139, with the high-end prices typically charged for Friday, Saturday, and Sunday. Yet the hotel manager is required to hold 20% of its rooms until the last minute in case a high roller comes into town and wants a room. If the player pays for the room, it is at the discounted casino rate of $45, even though the hotel manager could get as much as $139 for the room from a walk-in customer. 

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