Accounting Essentials for Hospitality Managers 3rd Edition Chris Guilding – Complete Test Bank (All Chapters)

SOLUTION MANUAL FOR ACCOUNTING
ESSENTIALS FOR HOSPILATY
MANAGERS 3RD EDITION




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CHAPTER 1 wi




Introduction
Problem 1.1: Solution wi wi




a) Functional interdependency exists when the performance of one functional area is affected wi wi wi wi wi wi wi wi wi wi wi wi




by the performance of a separate functional area. For example, in a hotel complex that is domi
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nated by a casino, the success of the rooms and food and beverage departments will be affected
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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 ac wi wi wi wi wi wi wi wi wi wi wi wi wi wi




countability because care should be taken to hold a manager accountable for only those aspect
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s of the hotel’s performance that he or she can influence. For example, the heads of rooms and f
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ood and beverage departments should not be held accountable for a decrease in their room sale
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s if it is caused by reduced casino activity.
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Problem 1.2: Solution wi wi




a) The four main dimensions of sales volatility in the hotel industry are:
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1. economic cycle induced sales volatility, wi wi wi wi




2. seasonal sales volatility, wi wi




3. weekly sales volatility, wi wi




4. intra-day sales volatility. wi wi




b) The implications that these dimensions of sales volatility carry for hotel accounting system
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s are as follows:
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1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic co wi wi wi wi wi wi wi wi wi wi wi




nditions highlights the importance of hotels carefully forecasting economic cycles as part
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of the annual budgeting process.
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2. Seasonal sales volatility: Three accounting implications arise: wi wi wi wi wi wi




• Seasonal sales volatility can be so severe to warrant temporary closure for some resort wi wi wi wi wi wi wi wi wi wi wi wi wi wi




properties. This possibility of having to make a closure decision signifies that cost and wi wi wi wi wi wi wi wi wi wi wi wi wi wi




revenue data should be recorded in a manner that will enable a well informed financial wi wi wi wi wi wi wi wi wi wi wi wi wi wi wi




analysis of the pros and cons of closing. wi wi wi wi wi wi wi




• Seasonal sales volatility can also pose particular cash management issues. During the wi wi wi wi wi wi wi wi wi wi wi wi




middle and tail- wi wi




end of the busy seasons, surplus cash balances are likely to result, while in the off-
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season and the build up to the busy season, deficit cash balances are likely to result. Ca wi wi wi wi wi wi wi wi wi wi wi wi wi wi wi wi




reful cash budgeting will therefore need to be conducted. wi wi wi wi wi wi wi wi




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,Accounting Essentials for Hospitality Managers (C. Guilding)
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Seasonal sales volatility will also affect price discounting decisions. To ensure such de
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cisions are well informed, careful forecasting as part of the annual budgetary process,
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will have to be conducted. wi wi wi wi




3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform manage
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ment’s decision making with respect to the amount and timing of room rate discounting, sta
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ffing needs as well as restaurant purchasing needs.
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4. Intra-day sales volatility: Intra-day demand volatility has led to widely-
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used pricing strategies such as “early bird specials” in restaurants and “happy hours” in bars
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. Records concerning demand at different times of the day will have to be maintained in ord
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er to inform such hotel pricing issues.
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Problem 1.3: Solution wi wi




Examples of business decisions requiring the use of financial accounting data include:
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(a) A bank manager deciding whether to lend money to a company. wi wi wi wi wi wi wi wi wi wi




(b) A shareholder deciding whether to sell her shares due to a fear that the company sh
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e has invested in might go bankrupt. wi wi wi wi wi wi




(c) A potential shareholder thinking about purchasing shares in a company an
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d interested in determining if the company is profitable.
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Examples of business decisions requiring the use of management accounting data include:
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(a) Determining whether accounts are being collected on time. wi wi wi wi wi wi wi




(b) Determining whether the business will have sufficient cash over the next year to av wi wi wi wi wi wi wi wi wi wi wi wi wi




oid the need to arrange a line of credit. wi wi wi wi wi wi wi wi




(c) Determining whether a drinks vending machine or a confectionary vendin w i w i w i w i w i w i w i w i w i




g machine should be installed in a hotel’s foyer area.
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(d) Determining what room rate to charge to achieve a target level of profit. wi wi wi wi wi wi wi wi wi wi wi wi




(e) Determining whether a seasonal hotel should be closed down during the quiet sea wi wi wi wi wi wi wi wi wi wi wi w i




son.
(f) Determining whether a restaurant manager is performing well. wi wi wi wi wi wi wi




Problem 1.4: Solution wi wi




a) High product perishability signifies that an item cannot be held in inventory for sale at a late
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r time. Food items have a limited life in inventory because of their rapid physical deterioration.
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Room nights and conference facilities cannot be placed in inventory because they relate to a p
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articular time period that expires. wi wi wi wi




b) The absolute perishability of rooms, conference and banquet facilities and the relative peris
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hability of food underlines the importance of accurate hotel demand forecasting as part of the b
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udgeting process. Generally, the most important aspect of forecasting is room occupancy, as r
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oom sales drive sales levels of other hotel services. Accurate restaurant forecasting provides th
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e basis for maintaining a full menu of options while also minimising the cost of food wastage.
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, Accounting Essentials for Hospitality Managers (C. Guilding) wi wi wi wi wi wi Solutions




Problem 1.5: Solution wi wi




Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve consi
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derable investment in fixed assets such as buildings on prime land as well as extensive furnishi
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ngs, fittings and equipment. This investment generates high rent and depreciation costs, which
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together with significant salary costs, result in a high fixed cost structure for hotels.
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Problem 1.6: Solution wi wi




a) Major hotel activities include room housekeeping, restaurant food preparation and service
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as well as bar service. Despite the advent of the machine and computer age, the physical aspect
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of all of these activities has changed little over the last fifty years, as they continue to have a hi
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gh labour component.wi wi




b) High labour intensive activities in hotels signifies the importance of performance measures
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that focus on labour productivity. Such performance indices include restaurant covers per em
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ployee hour worked and restaurant sales per employee hour worked. Monitoring differences b
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etween actual labour cost and budgeted labour cost represents another dimension of labour cos
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t management. An appropriate analysis of the difference between budgeted and actual labour c
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ost enables a distinction to be drawn between labour rate and labour efficiency factors.
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Problem 1.7: Solution wi wi




Financial accounting concerns the preparation of financial reports for external users such as s
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hareholders, banks and government authorities. In order for these financial reports to be meani wi wi wi wi wi wi wi wi wi wi wi wi wi




ngful, it is important that they are produced in a standardised way and are seen to be reliable. M
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anagement accounting concerns the provision of financial information to internal manageme wi wi wi wi wi wi wi wi wi wi




nt. This information is designed to help managers in their decision making and control of busin
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esses. Financial information sought by hotel managers includes determining the cost of provid
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ing a meal to inform the menu pricing decision, determining how many delegates need to atten
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d a conference in order to achieve break even, and determining what level of profit is made by
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each selling unit of a hotel to inform any rationalisation decision to drop a unit. The provision o
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f all these types of financial information falls within the scope of management accounting.
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Problem 1.8: Solution wi wi




The main accounting information users are:
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• Managers within the company being accounted for. Managers use accounting in wi wi wi wi wi wi wi wi wi wi




formation in planning and controlling business activities. wi wi wi wi wi wi




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