1
, Solutions – hc
Accounting Essentials for Hospitality Managers (3rd editio
hc hc hc hc hc hc hc
n)
CHAPTER 1 hc
Introduction
Problem 1.1: Solution hc hc
a) Functional interdependency exists when the performance of one functional area is affect
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ed by the performance of a separate functional area. For example, in a hotel complex that is
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
dominated by a casino, the success of the rooms and food and beverage departments will be
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affected by the success of the casino operations in attracting clients to the complex.
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b) Functional interdependency is an important issue for the designers of a hotel’s system of
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accountability because care should be taken to hold a manager accountable for only those as
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
pects of the hotel’s performance that he or she can influence. For example, the heads of roo
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ms and food and beverage departments should not be held accountable for a decrease in thei
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
r room sales if it is caused by reduced casino activity.
hc hc hc hc hc hc hc hc hc hc
Problem 1.2: Solution hc hc
a) The four main dimensions of sales volatility in the hotel industry are:
hc hc hc hc hc hc hc hc hc hc hc
1. economic cycle induced sales volatility, hc hc hc hc
2. seasonal sales volatility, hc hc
3. weekly sales volatility, hc hc
4. intra-day sales volatility. hc hc
b) The implications that these dimensions of sales volatility carry for hotel accounting syste
hc hc hc hc hc hc hc hc hc hc hc hc
ms are as follows:
hc hc hc
1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic
hc hc hc hc hc hc hc hc hc hc hc
conditions highlights the importance of hotels carefully forecasting economic cycles as
hc hc hc hc hc hc hc hc hc hc hc
part of the annual budgeting process.
hc hc hc hc hc
2. Seasonal sales volatility: Three accounting implications arise:
hc hc hc hc hc hc
• Seasonal sales volatility can be so severe to warrant temporary closure for some res
hc hc hc hc hc hc hc hc hc hc hc hc hc
ort properties. This possibility of having to make a closure decision signifies that cos
hc hc hc hc hc hc hc hc hc hc hc hc hc
t and revenue data should be recorded in a manner that will enable a well informed f
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
inancial analysis of the pros and cons of closing. hc hc hc hc hc hc hc hc
• Seasonal sales volatility can also pose particular cash management issues. During th
hc hc hc hc hc hc hc hc hc hc hc
e middle and tail- hc hc hc
end of the busy seasons, surplus cash balances are likely to result, while in the off-
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
season and the build up to the busy season, deficit cash balances are likely to result.
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
Careful cash budgeting will therefore need to be conducted. hc hc hc hc hc hc hc hc
2
,Accounting Essentials for Hospitality Managers (C. Guilding
hc hc hc hc hc hc Solutions
)
Seasonal sales volatility will also affect price discounting decisions. To ensure such
• hc hc hc hc hc hc hc hc hc hc hc hc
decisions are well informed, careful forecasting as part of the annual budgetary proc
hc hc hc hc hc hc hc hc hc hc hc hc
ess, will have to be conducted. hc hc hc hc hc
3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform mana
hc hc hc hc hc hc hc hc hc hc hc
gement’s decision making with respect to the amount and timing of room rate discountin
hc hc hc hc hc hc hc hc hc hc hc hc hc
g, staffing needs as well as restaurant purchasing needs.
hc hc hc hc hc hc hc hc
4. Intra-day sales volatility: Intra-day demand volatility has led to widely-
hc hc hc hc hc hc hc hc hc
used pricing strategies such as “early bird specials” in restaurants and “happy hours” in b
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ars. Records concerning demand at different times of the day will have to be maintained i
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
n order to inform such hotel pricing issues.
hc hc hc hc hc hc hc
Problem 1.3: Solution hc hc
Examples of business decisions requiring the use of financial accounting data include:
hc hc hc hc hc hc hc hc hc hc hc
(a) A bank manager deciding whether to lend money to a company.
hc hc hc hc hc hc hc hc hc hc
(b) A shareholder deciding whether to sell her shares due to a fear that the company
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
she has invested in might go bankrupt. hc hc hc hc hc hc
(c) A potential shareholder thinking about purchasing shares in a company
h c h c h c h c h c h c h c h c h c h c
and interested in determining if the company is profitable.
hc hc hc hc hc hc hc hc
Examples of business decisions requiring the use of management accounting data include:
hc hc hc hc hc hc hc hc hc hc hc
(a) Determining whether accounts are being collected on time. hc hc hc hc hc hc hc
(b) Determining whether the business will have sufficient cash over the next year to hc hc hc hc hc hc hc hc hc hc hc hc hc
avoid the need to arrange a line of credit. hc hc hc hc hc hc hc hc
(c) Determining whether a drinks vending machine or a confectionary vendi h c h c h c h c h c h c h c h c h c
ng machine should be installed in a hotel’s foyer area.
hc hc hc hc hc hc hc hc hc
(d) Determining what room rate to charge to achieve a target level of profit. hc hc hc hc hc hc hc hc hc hc hc hc
(e) Determining whether a seasonal hotel should be closed down during the quiet s hc hc hc hc hc hc hc hc hc hc hc h c
eason.
(f) Determining whether a restaurant manager is performing well. hc hc hc hc hc hc hc
Problem 1.4: Solution hc hc
a) High product perishability signifies that an item cannot be held in inventory for sale at a l
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ater time. Food items have a limited life in inventory because of their rapid physical deterior
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ation. Room nights and conference facilities cannot be placed in inventory because they rela
hc hc hc hc hc hc hc hc hc hc hc hc hc
te to a particular time period that expires.
hc hc hc hc hc hc hc
b) The absolute perishability of rooms, conference and banquet facilities and the relative per
hc hc hc hc hc hc hc hc hc hc hc hc
ishability of food underlines the importance of accurate hotel demand forecasting as part of t
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
he budgeting process. Generally, the most important aspect of forecasting is room occupanc
hc hc hc hc hc hc hc hc hc hc hc hc
y, as room sales drive sales levels of other hotel services. Accurate restaurant forecasting pr
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ovides the basis for maintaining a full menu of options while also minimising the cost of foo
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
d wastage.
hc
3
, Accounting Essentials for Hospitality Managers (C. Guilding
hc hc hc hc hc hc Solutions
)
Problem 1.5: Solution hc hc
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve co
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
nsiderable investment in fixed assets such as buildings on prime land as well as extensive fur
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
nishings, fittings and equipment. This investment generates high rent and depreciation costs,
hc hc hc hc hc hc hc hc hc hc hc
which together with significant salary costs, result in a high fixed cost structure for hotels.
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
Problem 1.6: Solution hc hc
a) Major hotel activities include room housekeeping, restaurant food preparation and servic
hc hc hc hc hc hc hc hc hc hc
e as well as bar service. Despite the advent of the machine and computer age, the physical as
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
pect of all of these activities has changed little over the last fifty years, as they continue to h
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ave a high labour component.
hc hc hc hc
b) High labour intensive activities in hotels signifies the importance of performance measur
hc hc hc hc hc hc hc hc hc hc hc
es that focus on labour productivity. Such performance indices include restaurant covers per
hc hc hc hc hc hc hc hc hc hc hc hc h
employee hour worked and restaurant sales per employee hour worked. Monitoring differen
c hc hc hc hc hc hc hc hc hc hc hc
ces between actual labour cost and budgeted labour cost represents another dimension of lab
hc hc hc hc hc hc hc hc hc hc hc hc hc
our cost management. An appropriate analysis of the difference between budgeted and actua
hc hc hc hc hc hc hc hc hc hc hc hc
l labour cost enables a distinction to be drawn between labour rate and labour efficiency fact
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ors.
Problem 1.7: Solution hc hc
Financial accounting concerns the preparation of financial reports for external users such a
hc hc hc hc hc hc hc hc hc hc hc hc
s shareholders, banks and government authorities. In order for these financial reports to be
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
meaningful, it is important that they are produced in a standardised way and are seen to be r
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
eliable. Management accounting concerns the provision of financial information to interna
hc hc hc hc hc hc hc hc hc hc
l management. This information is designed to help managers in their decision making and c
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ontrol of businesses. Financial information sought by hotel managers includes determining t
hc hc hc hc hc hc hc hc hc hc hc
he cost of providing a meal to inform the menu pricing decision, determining how many del
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
egates need to attend a conference in order to achieve break even, and determining what lev
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
el of profit is made by each selling unit of a hotel to inform any rationalisation decision to dr
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
op a unit. The provision of all these types of financial information falls within the scope of
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
management accounting. hc
Problem 1.8: Solution hc hc
The main accounting information users are:
hc hc hc hc hc
• Managers within the company being accounted for. Managers use accounting hc hc hc hc hc hc hc hc hc hc
information in planning and controlling business activities. hc hc hc hc hc hc
4
, Solutions – hc
Accounting Essentials for Hospitality Managers (3rd editio
hc hc hc hc hc hc hc
n)
CHAPTER 1 hc
Introduction
Problem 1.1: Solution hc hc
a) Functional interdependency exists when the performance of one functional area is affect
hc hc hc hc hc hc hc hc hc hc hc
ed by the performance of a separate functional area. For example, in a hotel complex that is
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
dominated by a casino, the success of the rooms and food and beverage departments will be
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
affected by the success of the casino operations in attracting clients to the complex.
hc hc hc hc hc hc hc hc hc hc hc hc hc
b) Functional interdependency is an important issue for the designers of a hotel’s system of
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
accountability because care should be taken to hold a manager accountable for only those as
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
pects of the hotel’s performance that he or she can influence. For example, the heads of roo
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ms and food and beverage departments should not be held accountable for a decrease in thei
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
r room sales if it is caused by reduced casino activity.
hc hc hc hc hc hc hc hc hc hc
Problem 1.2: Solution hc hc
a) The four main dimensions of sales volatility in the hotel industry are:
hc hc hc hc hc hc hc hc hc hc hc
1. economic cycle induced sales volatility, hc hc hc hc
2. seasonal sales volatility, hc hc
3. weekly sales volatility, hc hc
4. intra-day sales volatility. hc hc
b) The implications that these dimensions of sales volatility carry for hotel accounting syste
hc hc hc hc hc hc hc hc hc hc hc hc
ms are as follows:
hc hc hc
1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic
hc hc hc hc hc hc hc hc hc hc hc
conditions highlights the importance of hotels carefully forecasting economic cycles as
hc hc hc hc hc hc hc hc hc hc hc
part of the annual budgeting process.
hc hc hc hc hc
2. Seasonal sales volatility: Three accounting implications arise:
hc hc hc hc hc hc
• Seasonal sales volatility can be so severe to warrant temporary closure for some res
hc hc hc hc hc hc hc hc hc hc hc hc hc
ort properties. This possibility of having to make a closure decision signifies that cos
hc hc hc hc hc hc hc hc hc hc hc hc hc
t and revenue data should be recorded in a manner that will enable a well informed f
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
inancial analysis of the pros and cons of closing. hc hc hc hc hc hc hc hc
• Seasonal sales volatility can also pose particular cash management issues. During th
hc hc hc hc hc hc hc hc hc hc hc
e middle and tail- hc hc hc
end of the busy seasons, surplus cash balances are likely to result, while in the off-
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
season and the build up to the busy season, deficit cash balances are likely to result.
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
Careful cash budgeting will therefore need to be conducted. hc hc hc hc hc hc hc hc
2
,Accounting Essentials for Hospitality Managers (C. Guilding
hc hc hc hc hc hc Solutions
)
Seasonal sales volatility will also affect price discounting decisions. To ensure such
• hc hc hc hc hc hc hc hc hc hc hc hc
decisions are well informed, careful forecasting as part of the annual budgetary proc
hc hc hc hc hc hc hc hc hc hc hc hc
ess, will have to be conducted. hc hc hc hc hc
3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform mana
hc hc hc hc hc hc hc hc hc hc hc
gement’s decision making with respect to the amount and timing of room rate discountin
hc hc hc hc hc hc hc hc hc hc hc hc hc
g, staffing needs as well as restaurant purchasing needs.
hc hc hc hc hc hc hc hc
4. Intra-day sales volatility: Intra-day demand volatility has led to widely-
hc hc hc hc hc hc hc hc hc
used pricing strategies such as “early bird specials” in restaurants and “happy hours” in b
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ars. Records concerning demand at different times of the day will have to be maintained i
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
n order to inform such hotel pricing issues.
hc hc hc hc hc hc hc
Problem 1.3: Solution hc hc
Examples of business decisions requiring the use of financial accounting data include:
hc hc hc hc hc hc hc hc hc hc hc
(a) A bank manager deciding whether to lend money to a company.
hc hc hc hc hc hc hc hc hc hc
(b) A shareholder deciding whether to sell her shares due to a fear that the company
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
she has invested in might go bankrupt. hc hc hc hc hc hc
(c) A potential shareholder thinking about purchasing shares in a company
h c h c h c h c h c h c h c h c h c h c
and interested in determining if the company is profitable.
hc hc hc hc hc hc hc hc
Examples of business decisions requiring the use of management accounting data include:
hc hc hc hc hc hc hc hc hc hc hc
(a) Determining whether accounts are being collected on time. hc hc hc hc hc hc hc
(b) Determining whether the business will have sufficient cash over the next year to hc hc hc hc hc hc hc hc hc hc hc hc hc
avoid the need to arrange a line of credit. hc hc hc hc hc hc hc hc
(c) Determining whether a drinks vending machine or a confectionary vendi h c h c h c h c h c h c h c h c h c
ng machine should be installed in a hotel’s foyer area.
hc hc hc hc hc hc hc hc hc
(d) Determining what room rate to charge to achieve a target level of profit. hc hc hc hc hc hc hc hc hc hc hc hc
(e) Determining whether a seasonal hotel should be closed down during the quiet s hc hc hc hc hc hc hc hc hc hc hc h c
eason.
(f) Determining whether a restaurant manager is performing well. hc hc hc hc hc hc hc
Problem 1.4: Solution hc hc
a) High product perishability signifies that an item cannot be held in inventory for sale at a l
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ater time. Food items have a limited life in inventory because of their rapid physical deterior
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ation. Room nights and conference facilities cannot be placed in inventory because they rela
hc hc hc hc hc hc hc hc hc hc hc hc hc
te to a particular time period that expires.
hc hc hc hc hc hc hc
b) The absolute perishability of rooms, conference and banquet facilities and the relative per
hc hc hc hc hc hc hc hc hc hc hc hc
ishability of food underlines the importance of accurate hotel demand forecasting as part of t
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
he budgeting process. Generally, the most important aspect of forecasting is room occupanc
hc hc hc hc hc hc hc hc hc hc hc hc
y, as room sales drive sales levels of other hotel services. Accurate restaurant forecasting pr
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ovides the basis for maintaining a full menu of options while also minimising the cost of foo
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
d wastage.
hc
3
, Accounting Essentials for Hospitality Managers (C. Guilding
hc hc hc hc hc hc Solutions
)
Problem 1.5: Solution hc hc
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve co
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
nsiderable investment in fixed assets such as buildings on prime land as well as extensive fur
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
nishings, fittings and equipment. This investment generates high rent and depreciation costs,
hc hc hc hc hc hc hc hc hc hc hc
which together with significant salary costs, result in a high fixed cost structure for hotels.
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
Problem 1.6: Solution hc hc
a) Major hotel activities include room housekeeping, restaurant food preparation and servic
hc hc hc hc hc hc hc hc hc hc
e as well as bar service. Despite the advent of the machine and computer age, the physical as
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
pect of all of these activities has changed little over the last fifty years, as they continue to h
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ave a high labour component.
hc hc hc hc
b) High labour intensive activities in hotels signifies the importance of performance measur
hc hc hc hc hc hc hc hc hc hc hc
es that focus on labour productivity. Such performance indices include restaurant covers per
hc hc hc hc hc hc hc hc hc hc hc hc h
employee hour worked and restaurant sales per employee hour worked. Monitoring differen
c hc hc hc hc hc hc hc hc hc hc hc
ces between actual labour cost and budgeted labour cost represents another dimension of lab
hc hc hc hc hc hc hc hc hc hc hc hc hc
our cost management. An appropriate analysis of the difference between budgeted and actua
hc hc hc hc hc hc hc hc hc hc hc hc
l labour cost enables a distinction to be drawn between labour rate and labour efficiency fact
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ors.
Problem 1.7: Solution hc hc
Financial accounting concerns the preparation of financial reports for external users such a
hc hc hc hc hc hc hc hc hc hc hc hc
s shareholders, banks and government authorities. In order for these financial reports to be
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
meaningful, it is important that they are produced in a standardised way and are seen to be r
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
eliable. Management accounting concerns the provision of financial information to interna
hc hc hc hc hc hc hc hc hc hc
l management. This information is designed to help managers in their decision making and c
hc hc hc hc hc hc hc hc hc hc hc hc hc hc
ontrol of businesses. Financial information sought by hotel managers includes determining t
hc hc hc hc hc hc hc hc hc hc hc
he cost of providing a meal to inform the menu pricing decision, determining how many del
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
egates need to attend a conference in order to achieve break even, and determining what lev
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
el of profit is made by each selling unit of a hotel to inform any rationalisation decision to dr
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
op a unit. The provision of all these types of financial information falls within the scope of
hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc hc
management accounting. hc
Problem 1.8: Solution hc hc
The main accounting information users are:
hc hc hc hc hc
• Managers within the company being accounted for. Managers use accounting hc hc hc hc hc hc hc hc hc hc
information in planning and controlling business activities. hc hc hc hc hc hc
4
