Reference no: EM13340766

Q 1.

CRSL is continuing to re-evaluate all aspects of the business and would like you to look into staffing costs. Below is a summary of monthly staff and customer numbers and staff costs. 

 

	Staff Number	Number of customers	Staff cost ($)
January	20	700	27 800
February	22	250	14 000
March	10	200	12 000
April	20	500	20 000
May	24	650	23 800
June	28	450	18 400
July	16	50	20 400
August	14	150	8 200
September	24	350	18 800
October	24	600	22 200
November	16	300	16 600
December	32	750	32 200

 CRSL's relevant range has been estimated to be between 300 and 600 customers.

 

Required:

a) Draw a scatter diagram of CRSL customers and staff costs and mark the relevant range 
b) Use the high-low method to estimate the behaviour of CRSL staff cost based on customer numbers within the relevant range. Use an equation to express the results of this estimation method.

c) Using Excel or a similar program construct a regression analysis to estimate:

i) The equation to predict staff costs based on the number of visitors within the relevant range
ii) Based on the equation in c i) what would the staff cost be with 400 visitors per month
iii) Using both activities - number of visitors and staff numbers, determine what the staff cost, within the relevant range would be.

d) Does the inclusion of the additional cost driver (number of staff) improve the regression model? Explain your answer?

e) Of the three methods - high-low, single regression and multiple regression - which method would you be most confident in presenting to the Board of Directors? Explain your answer?

Q2.

CRSL is concerned that new gaming legislation will be passed whereby spending limits will be placed on gamblers. If this is the case CRSL may restructure their business by reducing the number of poker machines and transforming a large part of the current gaming machine area into a venue where conferences can be held. This area will have 10 rooms with 3 levels of conferences experiences offered - deluxe, standard and basic which will be aimed specifically at corporate, community groups and clients. The rooms would be charged out at a daily rate. 

You are proposing that the deluxe service will see a conference room equipped with the latest technology including a café style coffee machine and the provision of all food (max of 20 people per room). The next service level is standard whereby morning and afternoon tea is provided with the option for attendees to eat at the restaurant (max. of 35 people per room). Lastly, the basic level of service offers only tea and coffee (max of 75 people per room).

The rooms are all the same size and the cost to clean each room is the same but depending on the type of service chosen by a client, other costs will differ. An estimated cost for a room according to each service type (deluxe, standard and basic) appears below with the budgeted cost limit.

	Basic	Standard	Deluxe	Available Budget
Selling Price	$75.00	$90.00	$125.00
Meals	$15.00	$25.00	$35.00	$300.00
Direct labour	$7.00	$10.00	$12.00	$150.00
Room Clean per day	$10.00	$10.00	$10.00	$100.00
Variable overhead	$5.00	$10.00	$15.00	$105.00

Due to limits on the number of guests who may have access to the building at any one time, a maximum of one room offering basic service can be utilised per day and a minimum of two rooms offering deluxe services.

Required:

a) Formulate a linear program to determine the expected mix of conference rooms to ensure the maximum profit for CRSL. Show all supporting calculations and derive the optimum solution using a computer package (eg solver in Excel).

b) Comment on the solution, was it what you expected? Why or why not?