MOCK Exam 3

Please answer all questions linked to the case studies and calculations.

Case Study 2 (21 points)

“You’re our food guy. How can they do that?” asked Kevin Gustafson to Dominick
Carbonne, the Director of Operations for the seven-unit Brooklyn Pizza House restaurants.
The Brooklyn Pizza House was known for its mid-priced, but very high quality, New York–
style pizza. Located near the main campus at State University, its target market were the
students attending the University. The marketing programs created by Kevin, the chain’s
director of marketing, were clever and effective. Business and profits were good. But now
they were discussing the new $5.99 pizza promotion that had just been rolled out by their
major competitor.
“They changed their cheese topping formulation Kevin,” replied Dominick. “They increased
their use of pizza cheese by another 25 percent. One of my buddies works in their central
production kitchen. That’s where they process and prepackage the ingredients for delivery to
the stores. She says they changed their 75/25 mozzarella/pizza cheese ratio to a 50/50 ratio.
We still use 100 percent mozzarella.”
“Why would they do that?” asked Kevin.
“Well,” replied Dominick “the increased use of corn for ethanol production in this country
may be good for gas prices, but it’s made the price of dairy cattle feed skyrocket. Add to that
a continued drought in Australia that has limited their contribution to the world market and
you now have about a 40 percent increase over last year’s cheese prices. Pizza cheese is a
processed, pasteurized cheese food. Melts O.K., but it can’t compare to real mozzarella.
Actually, it can contain as little as 51 percent real cheese. Using a higher percentage of pizza
cheese means a lower per-pizza cost. That’s how they can reduce the price of their large pizza
to $5.99. I have been considering an increase in our own pizza prices just to maintain our
profit levels.”
“Whoa!!! We need to talk about that first. When they were at $6.99 and we were at $7.99 for
the same size, we were still O.K.,” said Kevin. “But now, since they reformulated, reduced
their price, and are at $5.99, I think they are really going to cut into our sales. That’s a major
problem. If we raise our prices now, that could absolutely kill us in the marketplace.”

Questions Linked to Case Study 2

1. How large a role do you believe “costs” played into the decision of this competitor to
reduce its pizza prices? (5 points)

2. Do you think “increased cheese costs” have directly reduced the quality of pizza sought by
the students at the University? (2 points) What is your general assessment of the wisdom
of the “reduced costs and reduce price” strategy as used by this competitor? (4 points)
Would your opinion change if you knew that, in the near future, the cost of cheese would
be reduced to its normal levels? (4 points)

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3. Assume you were the RM of Brooklyn Pizza House. What specific price-related decision
making challenges do you now face? How would you respond to them? (6 points)

Case Study 3 (16 points)

Dee Hardy was angry, and Randy Moran was just as angry.
“They said it was an absolute disaster. Bad service and we ran out of food,” said Dee.
“What did you expect,” replied Randy. “It’s your fault. We did our best!”
Dee and Randy were discussing the previous day’s breakfast at the 500-room hotel where
Dee served as DOSM and Randy as the F&B director. Between 6:30 A.M. and 7:30 A.M. the
previous morning, over 500 guests had attempted to enter the hotel’s 250-seat dining room.
With too few servers scheduled and too little food preprepared, guest waits were long, service
slow, and the kitchen ran out of several key breakfast items.
“Those rooms weren’t on the forecast you passed out at our revenue management meeting
last week,” said Randy. “When you add 150 rooms, with four people to the room, and you
don’t tell me about it, what do you expect?”
“We only got the business three days ago,” replied Dee. “And at a good rate. Were we
supposed to turn it down because we couldn’t serve a few extra people a decent breakfast?”
“We can serve 1,000 extra,” said Randy as he stalked off, “and we can serve them well—but
only if you do your job!”

Questions Linked to Case Study 3

1. Assume Randy had known about the 600 extra guests two days prior to their arrival. What
steps might he have taken to ensure the guests received a quality breakfast experience on
the day of their departure? (4 points)

2. Would you define 600 unexpected guests as “a few extra”?

What was Dee’s responsibility to the hotel in this situation?
As a customer-centric revenue manager, what was Dee’s responsibility to her arriving
guests? (8 points)

3. Part of an RM’s responsibility must include ensuring that guests get what they pay for.
Assume you were this hotel’s GM. What would you expect from your RM team in a future
and similar circumstance? (4 points)

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Case Study 4 (19 points)
Two weeks before their grand daughter’s wedding, Ester and Greg Barnes booked a room at
the Lakeside Plaza hotel. Ester received a confirmation number when she gave the hotel her
credit card information and agreed to its mandatory 24-hour cancellation policy.
When they arrived at Lakeside Plaza, much to their dismay, they were told that their room
was not available because the hotel was overbooked and as a result they would be put up at
the Clarion Hotel, which was only ten miles away.
Mrs. Barnes felt a little better when she was told that the Lakeside Plaza would pay for the
room at the Clarion the first night. The Lakeside’s front desk clerk then informed Mrs. Barnes
that the Lakeside Plaza did have openings for the second night, and thus the Barnes would
have to return to the Lakeside for their second-night stay because on that day, the Clarion had
sold all of its rooms.
After checking in at the Clarion, the Barnes unpacked, showered, and arrived at their
granddaughter’s rehearsal dinner one hour late. The next day, they had to leave a family
function in the morning, return to the Clarion, repack their belongings, check out before noon,
and drive back to the Lakeside, where the somber clerk on duty informed them that their room
would not be ready until 3:00 P.M. because the hotel had sold out the night before and also
because, the clerk stated, “3:00 P.M. is our normal check-in time.”
“But,” protested Mrs. Barnes, “the wedding begins across town at 2:30 this afternoon and I
still have to get ready!”

Questions Linked to Case Study 4

1. What did the Lakeside do wrong in the case of Mr. and Mrs. Barnes? (6 points)

2. If the RM at the Lakeside Plaza intentionally overbooked on the night of the Barneses
arrival, was his or her action ethical in your opinion? (4 points)

3. Assume these were your grandparents and the wedding they wished to attend were your
own. Would you share details of this incident with those you know? (1 point)

Would you use the Internet to share the details with them? How and why? (5 points)

How would your comments reflect on the Lakeside Plaza? (3 points)

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 Calculations
5. Antonio is the RM at the 180-room Hawthorne Suites. Disappointed in his occupancy rate
last year, he decided to reduce his room rates this year by 10 percent to help increase sales
and improve his RevPAR. This action resulted in an upswing in occupancy, from 75 percent
last year, to 85 percent this year; an increase of 13.3 percent. Last year, Antonio’s
controllable operating costs were $61.00 per room. This year, they rose to $62.00 per room,
an increase of only 1.6 percent. Help Antonio better understand the overall results of his rate
reduction strategy by completing his hotel’s May operating performance worksheet and then
answering the questions that follow. (24 points)

Statistics Last May This May

Occupancy % 75% 85%
Rooms sold (180*30)*75% = 4,050 (180*30)*85% = 4,590
ADR $129.99 $116.99
Rooms revenue 4,050*129.99 = $526,459.5 4,590*116.99 = $536,984.1
RevPAR 526,459.5/(180*30) = $97.49 536,984.2/(180*30) = $99.44
Controllable operating 61*4,050 = $247,050 62*4,590 = $284,580
costs
Gross operating profit 526,459.5-247,050 = 536,984.1-284,580 = $252,404.1
$279,409.5
GOPPAR 279,409.5/5,400 = $51.74 252,404.1/5,400 = $46.74

5.1. What was Antonio’s RevPAR “Last May?” (4 points)

(4,050*129.99)/(180*30) = $97.49
5.2. What was Antonio’s RevPAR “This May?” (4 points)
(4,590*116.99)/(180*30) = $99.44

5.3. What was Antonio’s GOPPAR “Last May? (4 points)

5.4. What was Antonio’s GOPPAR change from last May to this May: In dollars? (3 points)
And in %? (3 points)
46.74-51.74 = -$5
((46.74/51.74)-1)*100 = -9.66%

5.5. Compare Antonio’s GOPPAR performance this year versus last year. How effective do
you believe Antonio was in devising and implementing his revenue optimization strategy? (6
points)

6. Teshia is the RM at the 250-room Springwood Suites hotel. The Springwood is a select service
property whose F&B services consist only of complimentary breakfast. For a future date, Teshia has 100
rooms on the books and she forecasts that a total of 200 rooms can be sold that day at an ADR of
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$180.00. Teshia’s DOS states that a large convention is coming to the area on that date and the group
rooms buyer for the convention has requested the hotel offer the group a rate of $150.00 for 100 of the
property’s available rooms. The DOS believes the group will pick up all of its rooms and thus, with the
100 rooms already on the books and with only 50 of the additional room sales forecast by Teshia, the
hotel will sell all 250 of its rooms on that day. (20 points)

Original Forecast With Group Forecast

Rooms available 250 Rooms Available 250
ADR $180.00 ADR $168
Rooms sold 200 Rooms sold 250
(100*150)+
(150*180) =
Room revenue $36,000 Room revenue $42,000

Occupancy % (Rooms sold / Occupancy % (Rooms sold

Rooms available) 80% / Rooms available) 100%

Rooms sold 200 Rooms sold 250

Distributable CPOR $68 Distributable CPOR $68

Distributable operating 200*68 = Distributable operating 250*68 =

expense $13,600 expense $17,000

Undistributable cost per Undistributable cost per

available room $28 available room $28
Rooms available 250 Rooms available 250
Undistributable operating 28*250 = Undistributable operating 28*250 =
expense $7,000 expense $7,000

Room revenue $36,000 Room revenue $42,000

Less Distributable CPOR -$13,600 Less Distributable CPOR -$17,000

Less Undistributable operating Less Undistributable
expense -$7,000 operating expense -$7,000
36,000-13,600-
7,000 = Gross operating profit 42,000-17,000-
Gross operating profit (GOP) $15,400 (GOP) 7,000 = $18,000
GOP % GOP %

6.1. If 100 rooms were committed at the requested group rate and the hotel indeed sold out,
what would be the hotel’s rooms revenue on this date? (4 points)

6.2. What would be the hotel’s GOP if no group rooms were allocated by Teshia and her
original forecast of 200 sold rooms on this date were accurate? (4 points)

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6.3. What would be the hotel’s GOP if 100 group rooms were allocated by Teshia and the
revised forecast of 250 sold rooms on this date were accurate? (4 points)

6.4. Would you advise Teshia to offer the group rooms at $150.00 per night? (4 points)

6.5. What could be some reasons not related to this night’s revenue that could motivate Teshia
to offer the group the requested lower rate?
(4 points)

End of Mock Exam 3

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