Solutions Manual For Accounting Essentials for Hospitality Managers, 3e Chris Guilding

Solutions Manual For Accounting Essentials for Hospitality Managers, 3e Chris Guilding-a) Functional interdependency exists when the performance of one functional area is affected by the performance of a separate functional area. For example, in a hotel complex that is dominated by a casino, the success of the rooms and food and beverage departments will be affected by the success of the casino operations in attracting clients to the complex. b) Functional interdependency is an important issue for the designers of a hotel’s system of accountability because care should be taken to hold a manager accountable for only those aspects of the hotel’s performance that he or she can influence. For example, the heads of rooms and food and beverage departments should not be held accountable for a decrease in their room sales if it is caused by reduced casino activity. Problem 1.2: Solution a) The four main dimensions of sales volatility in the hotel industry are: 1. economic cycle induced sales volatility, 2. seasonal sales volatility, 3. weekly sales volatility, 4. intra-day sales volatility. b) The implications that these dimensions of sales volatility carry for hotel accounting systems are as follows: 1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic conditions highlights the importance of hotels carefully forecasting economic cycles as part of the annual budgeting process. 2. Seasonal sales volatility: Three accounting implications arise:  Seasonal sales volatility can be so severe to warrant temporary closure for some resort properties. This possibility of having to make a closure decision signifies that cost and revenue data should be recorded in a manner that will enable a well informed financial analysis of the pros and cons of closing.  Seasonal sales volatility can also pose particular cash management issues. During the middle and tail-end of the busy seasons, surplus cash balances are likely to result, while in the off-season and the build up to the busy season, deficit cash balances are likely to result. Careful cash budgeting will therefore need to be conducted. Accounting Essentials for Hospitality Managers (C. Guilding) Solutions 2  Seasonal sales volatility will also affect price discounting decisions. To ensure such decisions are well informed, careful forecasting as part of the annual budgetary process, will have to be conducted. 3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform management’s decision making with respect to the amount and timing of room rate discounting, staffing needs as well as restaurant purchasing needs. 4. Intra-day sales volatility: Intra-day demand volatility has led to widely-used pricing strategies such as “early bird specials” in restaurants and “happy hours” in bars. Records concerning demand at different times of the day will have to be maintained in order to inform such hotel pricing issues. Problem 1.3: Solution Examples of business decisions requiring the use of financial accounting data include: (a) A bank manager deciding whether to lend money to a company. (b) A shareholder deciding whether to sell her shares due to a fear that the company she has invested in might go bankrupt. (c) A potential shareholder thinking about purchasing shares in a company and interested in determining if the company is profitable. Examples of business decisions requiring the use of management accounting data include: (a) Determining whether accounts are being collected on time. (b) Determining whether the business will have sufficient cash over the next year to avoid the need to arrange a line of credit. (c) Determining whether a drinks vending machine or a confectionary vending machine should be installed in a hotel’s foyer area. (d) Determining what room rate to charge to achieve a target level of profit. (e) Determining whether a seasonal hotel should be closed down during the quiet season. (f) Determining whether a restaurant manager is performing well.