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Oxford Spire Hostel is a not-for-profit hostel with 23 beds. It is run by a local charity, using a combination of paid and volunteer labour.

ACFI 5013 Applied Financial Skills – Assignment 1

Oxford Spire Hostel

Oxford Spire Hostel is a not-for-profit hostel with 23 beds. It is run by a local charity, using a combination of paid and volunteer labour. The current number of guests per year averages 5,000, who pay £15.00 for their bed, washing facilities, internet/computer access, an evening meal and breakfast. The hostel opens 351 days a year.

The Hostel has experienced long-term losses. The trustees have decided that the losses are not sustainable and would like to reduce the deficit to 0 for next year. However, costs are also expected to rise, as shown below:

CostsCurrentIncrease next year
Variable costsFood£6.006.0%
Labour£8.005.0%
Other£2.0015.0%
Total£16.00
Fixed costs£20,0005.0%

In order to achieve a zero subsidy, the trustees are considering the following three options for the next year’s operation:

a) Find a new room rate to be charged;

b) Keep existing room rate but try to increase occupancy (i.e. number of room bookings);

c) Find another new room rate based on a forecast of additional room bookings.

Required

  1. Calculate and briefly discuss the new price to be charged for option a)
  2. Calculate and briefly discuss the required room bookings for option b)
  3. Calculate and briefly discuss the new price to be charged for option c). Additional 1,000 bookings are forecasted to come to the next year.
  4. Discuss weakness and strength of the pricing strategy you have used for the calculations. Elaborate any recommendations you can give to help the hostel maximise its revenue.

Notes

  1. Refer to week 4 class lecture slides to understand the detailed requirements to each of the four questions.
  2. Ignore VAT throughout the scenario.
  3. You are encouraged to use no more than three academic references.

Assessment criteria

Your mark will depend on how well you have completed the following criteria:

Q 1  10 marks: Clear discussion and correct calculation, each 5 marks
Q 2  10 marks: Clear discussion and correct calculation, each 5 marks
Q 3  10 marks: Clear discussion and correct calculation, each 5 marks
Q 410 marks: each 5 marks
Overall commentsTotal 40 marks

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