HSA 447 Final Exam

What is a sunken cost?

lost cost

What is opportunity cost?

the loss of potential gain from other alternatives when one alternative is chosen

What do you use the high and low point method for?

to determine fixed and variable elements

What are informal pricing approaches?

-check your competitors -use your guts (intuition) -what the guest expects to pay -monitor guest reactions

What is the utility curve?

-happiness is utility -increasing at a decreasing rate

What is the cost approach method?

-no dramatic increase -book says to disguise price increase

The Beach Hotel is located in a warm-weather destination area. For two weeks every spring, thousands of college students travel to the area for fun and relaxation. Which of the following yield management tactics would make the least sense for pricing rooms during these two weeks? a. Create attractive discount packages. b. Refuse reservations for one-night stays. c. Sell all rooms at rack rates. d. Require a three-day minimum stay at rack rate.

a: Create attractive discount packages.

When demand is elastic, a price increase will __________ total revenues. a. decrease b. increase c. decrease, then increase d. have no effect on

a: decrease

The owner of the River Front Restaurant is renegotiating the operation's lease and has the option of either an annual fixed lease of $55,000 or a variable lease set at 5% of annual revenue. Which option costs less if annual revenue is expected to be $1,200,000? a. the fixed lease b. the variable lease c. both options cost the same d. cannot be determined from the information given

a: the fixed lease

What are marginal costs?

additional costs

Which of the following statements about markup pricing is true? a. When a markup approach is used, the resulting price should be based solely on the computed amount. b. Everything else being the same, the multiple for the ingredient markup approach to pricing will be smaller than the multiple for the prime ingredient markup approach. c. In the ingredient markup approach to pricing, the multiple is determined by dividing 1 by the difference of 1 and the desired ingredient cost percentage. d. With markup approaches to pricing, historical pricing strategies should be ignored.

b: Everything else being the same, the multiple for the ingredient markup approach to pricing will be smaller than the multiple for the prime ingredient markup approach

Menu engineering classifies menu items that are low in menu mix and low in contribution margin as: a. puzzles. b. dogs. c. stars. d. plow horses.

b: dogs

Which cost decreases the most on a per-unit basis as activity increases? a. variable b. fixed c. mixed d. total

b: fixed

Which of the following statements is false? a. Department heads are responsible for the direct costs of their departments. b. Managers of individual departments are usually held responsible for overhead costs. c. Overhead costs generally include indirect costs. d. Payroll and related expenses for rooms department staff are considered direct expenses of the rooms department.

b: managers of individual departments are usually held responsible for overhead costs

If the average room rate is $50 when 500 rooms are sold, and if the multiple occupancy is 40% and double rooms are priced $10 higher than single rooms, then the price of a double room is: a. $50. b. $54. c. $56.Total Rev=25,000 500*0.4=200 (Double) 200*(X+10) +300X=25000 d. $58.

c: $56.Total Rev=25,000 500*0.4=200 (Double) 200*(X+10) +300X=25000

During a recent 30-day period, the El Sol Resort sold 4,000 rooms at an average room rate of $80. During the next 30-day period, the price was increased to $90, and 3,500 rooms were sold. What is the price elasticity of demand for the resort's rooms? a. 0.10 b. 0.13 c. 1.00 d. 1.29

c: 1.00

A sunk cost is: a. relevant in decision-making situations. b. a quantifiable future cost. c. a cost that has already been incurred. d. a differential cost.

c: a cost that has already been incurred

As occupancy decreases, hotel managers should generally expect: a. an increase in total fixed costs. b. a decrease in the average fixed cost per room sold. c. a decrease in total variable costs. d. an increase in variable costs per room sold.

c: a decrease in total variable costs

Menu engineering pricing strategies evaluate menu items on the basis of: a. contribution margin and food cost percentage. b. menu mix and food cost percentage. c. contribution margin and menu mix. d. none of the above.

c: contribution margin and menu mix.

Which of the following is a yield management tactic to use during high demand periods? a. Permit sales agents to offer lower rates as the date in question approaches. b. Choose a fixed time to close off higher rate categories to particular market segments. c. Upgrade guests to nicer accommodations than they normally would have at a particular room rate. d. Establish a minimum number of nights per stay.

d: Establish a minimum number of nights per stay

The corporate management team of a theme restaurant chain recently evaluated the chain's menu items and identified several items that are high in popularity, but low in contribution margin. In relation to these items, which of the following is the least appropriate strategy? a. Gradually increase prices. b. Place the items in low profile locations on the menu. c. Shift demand to more profitable items. d. Remove them from the menu.

d: Remove them from the menu.

When an integrated pricing approach is used at a hospitality operation, which of the following usually results? a. Costs decrease for the hospitality operation. b. Costs increase for the hospitality operation, but profitability also increases. c. All profit centers maximize profits. d. Some profit centers do not maximize profits.

d: Some profit centers do not maximize profits

Which of the following is not a fixed cost? a. property taxes b. salary (set at $25,000 for the period) c. depreciation d.operating supplies

d: operating supplies

What does it mean when demand is elastic?

demand is sensitive to price change

If the Price Elasticity of Demand (PED) is more than one, is it elastic or inelastic?

elastic

If the Price Elasticity of Demand (PED) is less than one, is it elastic or inelastic?

inelastic