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# Monthly Cash Budget for Ritz-Carlton

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Suppose Ritz-Carlton has a 300 room hotel in the tropical climate. Management expects occupancy rates to be 95 percent in December, January, February, 85 percent in November March, and April and 70 percent the rest of the year. The average room rental is \$250 per night. Of this, on an average 10 percent is received as a deposit the month before the stay, 60 percent is received in the month of the stay, and 28 percent is collected the month after. The remaining 2 percent is never collected.
Most of the costs of running the hotel are fixed. The variable costs are only \$30 per occupied room per night. Fixed salaries (including benefits) run \$400,000 per month, amortization is \$350,000 a month other fixed operating costs are \$120,000 per month, and interest expense is \$500,000 per month. Variable costs and salaries are paid in the month they are incurred, amortization is recorded at the end of each quarter, other fixed operating costs are paid as incurred, and interest is paid each June and December.

1. Prepare a monthly cash budget for this Ritz-Carlton hotel (January through December). For simplicity, assume that there are 30 days in each month and that the beginning cash balance for January is zero.
2. How much would the hotel's annual profit increase if occupancy rates increased by five percentage points each month in the off-season (that is, from 70 percent in May through October)?

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#### Solution Preview

The cash budget is in the attached file. How you make cash budget - First estimate the collections - these are based on the collection pattern given in the question. ...

#### Solution Summary

The solution explains how to prepare a monthly cash budget using the example of Ritz-Carlton. The solution also explains the change in monthly profit given a change in occupancy rate

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