1
, Solutions – mo
mo Accounting Essentials for Hospitality Managers (3rd editi mo mo mo mo mo mo
on)
CHAPTER 1 mo
Introduction
Problem 1.1: Solution mo mo
a) Functional interdependency exists when the performance of one functional area is a
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ffected by the performance of a separate functional area. For example, in a hotel com
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plex that is dominated by a casino, the success of the rooms and food and beverage d
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
epartments will be affected by the success of the casino operations in attracting clients
mo mo mo mo mo mo mo mo mo mo mo mo mo
to the complex.
mo mo mo
b) Functional interdependency is an important issue for the designers of a hotel’s syste
mo mo mo mo mo mo mo mo mo mo mo mo
m of accountability because care should be taken to hold a manager accountable for o
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
nly those aspects of the hotel’s performance that he or she can influence. For example
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
, the heads of rooms and food and beverage departments should not be held accounta
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
ble for a decrease in their room sales if it is caused by reduced casino activity.
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
Problem 1.2: Solution mo mo
a) The four main dimensions of sales volatility in the hotel industry are:
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1. economic cycle induced sales volatility, mo mo mo mo
2. seasonal sales volatility, mo mo
3. weekly sales volatility, mo mo
4. intra-day sales volatility. mo mo
b) The implications that these dimensions of sales volatility carry for hotel accounting
mo mo mo mo mo mo mo mo mo mo mo
systems are as follows:
mo mo mo mo
1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general econo
mo mo mo mo mo mo mo mo mo mo
mic conditions highlights the importance of hotels carefully forecasting economic c
mo mo mo mo mo mo mo mo mo mo
ycles as part of the annual budgeting process.
mo mo mo mo mo mo mo
2. Seasonal sales volatility: Three accounting implications arise:
mo mo mo mo mo mo
• Seasonal sales volatility can be so severe to warrant temporary closure for som
mo mo mo mo mo mo mo mo mo mo mo mo
e resort properties. This possibility of having to make a closure decision signifi
mo mo mo mo mo mo mo mo mo mo mo mo
es that cost and revenue data should be recorded in a manner that will enable
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
a well informed financial analysis of the pros and cons of closing.
mo mo mo mo mo mo mo mo mo mo mo
• Seasonal sales volatility can also pose particular cash management issues. Duri
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ng the middle and tail- mo mo mo mo
end of the busy seasons, surplus cash balances are likely to result, while in the
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
off- mo
season and the build up to the busy season, deficit cash balances are likely to
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
result. Careful cash budgeting will therefore need to be conducted.
mo mo mo mo mo mo mo mo mo
2
,AccountingmoEssentialsmoformoHospitalitymoManagersmo(C.moGuild Solutions
ing)
Seasonal sales volatility will also affect price discounting decisions. To ensure
• mo mo mo mo mo mo mo mo mo mo mo
such decisions are well informed, careful forecasting as part of the annual bud
mo mo mo mo mo mo mo mo mo mo mo mo
getary process, will have to be conducted. mo mo mo mo mo mo
3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform
mo mo mo mo mo mo mo mo mo mo mo
management’s decision making with respect to the amount and timing of room rate
mo mo mo mo mo mo mo mo mo mo mo mo m
discounting, staffing needs as well as restaurant purchasing needs.
o mo mo mo mo mo mo mo mo
4. Intra-day sales volatility: Intra-day demand volatility has led to widely-
mo mo mo mo mo mo mo mo mo
used pricing strategies such as “early bird specials” in restaurants and “happy hours
mo mo mo mo mo mo mo mo mo mo mo mo
” in bars. Records concerning demand at different times of the day will have to be
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo m
maintained in order to inform such hotel pricing issues.
o mo mo mo mo mo mo mo mo
Problem 1.3: Solution mo mo
Examples of business decisions requiring the use of financial accounting data include:
mo mo mo mo mo mo mo mo mo mo mo
(a) A bank manager deciding whether to lend money to a company.
mo mo mo mo mo mo mo mo mo mo
(b) A shareholder deciding whether to sell her shares due to a fear that the co
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
mpany she has invested in might go bankrupt. mo mo mo mo mo mo mo
(c) A potential shareholder thinking about purchasing shares in a compa
m o m o m o m o m o m o m o m o m o
ny and interested in determining if the company is profitable.
m o mo mo mo mo mo mo mo mo
Examples of business decisions requiring the use of management accounting data include:
mo mo mo mo mo mo mo mo mo mo mo
(a) Determining whether accounts are being collected on time. mo mo mo mo mo mo mo
(b) Determining whether the business will have sufficient cash over the next ye mo mo mo mo mo mo mo mo mo mo mo
ar to avoid the need to arrange a line of credit.
mo mo mo mo mo mo mo mo mo mo
(c) Determining whether a drinks vending machine or a confectionary v m o m o m o m o m o m o m o m o m o
ending machine should be installed in a hotel’s foyer area.
mo mo mo mo mo mo mo mo mo
(d) Determining what room rate to charge to achieve a target level of profit. mo mo mo mo mo mo mo mo mo mo mo mo
(e) Determining whether a seasonal hotel should be closed down during the qui mo mo mo mo mo mo mo mo mo mo mo
et season. m o
(f) Determining whether a restaurant manager is performing well. mo mo mo mo mo mo mo
Problem 1.4: Solution mo mo
a) High product perishability signifies that an item cannot be held in inventory for sal
mo mo mo mo mo mo mo mo mo mo mo mo mo
e at a later time. Food items have a limited life in inventory because of their rapid p
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
hysical deterioration. Room nights and conference facilities cannot be placed in invent
mo mo mo mo mo mo mo mo mo mo mo
ory because they relate to a particular time period that expires.
mo mo mo mo mo mo mo mo mo mo
b) The absolute perishability of rooms, conference and banquet facilities and the relati
mo mo mo mo mo mo mo mo mo mo mo
ve perishability of food underlines the importance of accurate hotel demand forecasting
mo mo mo mo mo mo mo mo mo mo mo
as part of the budgeting process. Generally, the most important aspect of forecasting
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
is room occupancy, as room sales drive sales levels of other hotel services. Accurate r
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
estaurant forecasting provides the basis for maintaining a full menu of options while a
mo mo mo mo mo mo mo mo mo mo mo mo mo
lso minimising the cost of food wastage.
mo mo mo mo mo mo
3
, AccountingmoEssentialsmoformoHospitalitymoManagersmo(C.moGuild Solutions
ing)
Problem 1.5: Solution mo mo
Fixed costs are costs that do not vary as a function
mo mo mo mo mo mo mo mo mo mo mo of sales activity levels. Hotels inv
mo mo mo mo mo
olve considerable investment in fixed assets such as
mo mo mo mo mo mo mo mo buildings on prime land as well a
mo mo mo mo mo mo
s extensive furnishings, fittings and equipment. This
mo mo mo mo mo mo mo investment generates high rent an mo mo mo mo
d depreciation costs, which together with significant
mo mo mo mo mo mo mo salary costs, result in a high fixed
mo mo mo mo mo mo
cost structure for hotels.
mo mo mo mo
Problem 1.6: Solution mo mo
a) Major hotel activities include room housekeeping, restaurant food preparation and s
mo mo mo mo mo mo mo mo mo mo
ervice as well as bar service. Despite the advent of the machine and computer age, th
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
e physical aspect of all of these activities has changed little over the last fifty years, a
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
s they continue to have a high labour component.
mo mo mo mo mo mo mo mo
b) High labour intensive activities in hotels signifies the importance of performance m
mo mo mo mo mo mo mo mo mo mo mo
easures that focus on labour productivity. Such performance indices include restaurant
mo mo mo mo mo mo mo mo mo mo mo
covers per employee hour worked and restaurant sales per employee hour worked. Mo
mo mo mo mo mo mo mo mo mo mo mo mo
nitoring differences between actual labour cost and budgeted labour cost represents an
mo mo mo mo mo mo mo mo mo mo mo
other dimension of labour cost management. An appropriate analysis of the difference
mo mo mo mo mo mo mo mo mo mo mo mo
between budgeted and actual labour cost enables a distinction to be drawn between la
mo mo mo mo mo mo mo mo mo mo mo mo mo
bour rate and labour efficiency factors.
mo mo mo mo mo
Problem 1.7: Solution mo mo
Financial accounting concerns the preparation of financial reports for external users s
mo mo mo mo mo mo mo mo mo mo mo
uch as shareholders, banks and government authorities. In order for these financial rep
mo mo mo mo mo mo mo mo mo mo mo mo
orts to be meaningful, it is important that they are produced in a standardised way an
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
d are seen to be reliable. Management accounting concerns the provision of financial
mo mo mo mo mo mo mo mo mo mo mo mo
moinformation to internal management. This information is designed to help managers in
mo mo mo mo mo mo mo mo mo mo mo
motheir decision making and control of businesses. Financial information sought by hote
mo mo mo mo mo mo mo mo mo mo mo
l managers includes determining the cost of providing a meal to inform the menu pric
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
ing decision, determining how many delegates need to attend a conference in order to
mo mo mo mo mo mo mo mo mo mo mo mo mo m
oachieve break even, and determining what level of profit is made by each selling unit
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
moof a hotel to inform any rationalisation decision to drop a unit. The provision of all t
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
hese types of financial information falls within the scope of management accounting.
mo mo mo mo mo mo mo mo mo mo mo
Problem 1.8: Solution mo mo
The main accounting information users are:
mo mo mo mo mo
• Managers within the company being accounted for. Managers use account
mo mo mo mo mo mo mo mo mo
ing information in planning and controlling business activities.
mo mo mo mo mo mo mo
4
, Solutions – mo
mo Accounting Essentials for Hospitality Managers (3rd editi mo mo mo mo mo mo
on)
CHAPTER 1 mo
Introduction
Problem 1.1: Solution mo mo
a) Functional interdependency exists when the performance of one functional area is a
mo mo mo mo mo mo mo mo mo mo mo
ffected by the performance of a separate functional area. For example, in a hotel com
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
plex that is dominated by a casino, the success of the rooms and food and beverage d
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
epartments will be affected by the success of the casino operations in attracting clients
mo mo mo mo mo mo mo mo mo mo mo mo mo
to the complex.
mo mo mo
b) Functional interdependency is an important issue for the designers of a hotel’s syste
mo mo mo mo mo mo mo mo mo mo mo mo
m of accountability because care should be taken to hold a manager accountable for o
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
nly those aspects of the hotel’s performance that he or she can influence. For example
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
, the heads of rooms and food and beverage departments should not be held accounta
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
ble for a decrease in their room sales if it is caused by reduced casino activity.
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
Problem 1.2: Solution mo mo
a) The four main dimensions of sales volatility in the hotel industry are:
mo mo mo mo mo mo mo mo mo mo mo
1. economic cycle induced sales volatility, mo mo mo mo
2. seasonal sales volatility, mo mo
3. weekly sales volatility, mo mo
4. intra-day sales volatility. mo mo
b) The implications that these dimensions of sales volatility carry for hotel accounting
mo mo mo mo mo mo mo mo mo mo mo
systems are as follows:
mo mo mo mo
1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general econo
mo mo mo mo mo mo mo mo mo mo
mic conditions highlights the importance of hotels carefully forecasting economic c
mo mo mo mo mo mo mo mo mo mo
ycles as part of the annual budgeting process.
mo mo mo mo mo mo mo
2. Seasonal sales volatility: Three accounting implications arise:
mo mo mo mo mo mo
• Seasonal sales volatility can be so severe to warrant temporary closure for som
mo mo mo mo mo mo mo mo mo mo mo mo
e resort properties. This possibility of having to make a closure decision signifi
mo mo mo mo mo mo mo mo mo mo mo mo
es that cost and revenue data should be recorded in a manner that will enable
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
a well informed financial analysis of the pros and cons of closing.
mo mo mo mo mo mo mo mo mo mo mo
• Seasonal sales volatility can also pose particular cash management issues. Duri
mo mo mo mo mo mo mo mo mo mo
ng the middle and tail- mo mo mo mo
end of the busy seasons, surplus cash balances are likely to result, while in the
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
off- mo
season and the build up to the busy season, deficit cash balances are likely to
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
result. Careful cash budgeting will therefore need to be conducted.
mo mo mo mo mo mo mo mo mo
2
,AccountingmoEssentialsmoformoHospitalitymoManagersmo(C.moGuild Solutions
ing)
Seasonal sales volatility will also affect price discounting decisions. To ensure
• mo mo mo mo mo mo mo mo mo mo mo
such decisions are well informed, careful forecasting as part of the annual bud
mo mo mo mo mo mo mo mo mo mo mo mo
getary process, will have to be conducted. mo mo mo mo mo mo
3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform
mo mo mo mo mo mo mo mo mo mo mo
management’s decision making with respect to the amount and timing of room rate
mo mo mo mo mo mo mo mo mo mo mo mo m
discounting, staffing needs as well as restaurant purchasing needs.
o mo mo mo mo mo mo mo mo
4. Intra-day sales volatility: Intra-day demand volatility has led to widely-
mo mo mo mo mo mo mo mo mo
used pricing strategies such as “early bird specials” in restaurants and “happy hours
mo mo mo mo mo mo mo mo mo mo mo mo
” in bars. Records concerning demand at different times of the day will have to be
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo m
maintained in order to inform such hotel pricing issues.
o mo mo mo mo mo mo mo mo
Problem 1.3: Solution mo mo
Examples of business decisions requiring the use of financial accounting data include:
mo mo mo mo mo mo mo mo mo mo mo
(a) A bank manager deciding whether to lend money to a company.
mo mo mo mo mo mo mo mo mo mo
(b) A shareholder deciding whether to sell her shares due to a fear that the co
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
mpany she has invested in might go bankrupt. mo mo mo mo mo mo mo
(c) A potential shareholder thinking about purchasing shares in a compa
m o m o m o m o m o m o m o m o m o
ny and interested in determining if the company is profitable.
m o mo mo mo mo mo mo mo mo
Examples of business decisions requiring the use of management accounting data include:
mo mo mo mo mo mo mo mo mo mo mo
(a) Determining whether accounts are being collected on time. mo mo mo mo mo mo mo
(b) Determining whether the business will have sufficient cash over the next ye mo mo mo mo mo mo mo mo mo mo mo
ar to avoid the need to arrange a line of credit.
mo mo mo mo mo mo mo mo mo mo
(c) Determining whether a drinks vending machine or a confectionary v m o m o m o m o m o m o m o m o m o
ending machine should be installed in a hotel’s foyer area.
mo mo mo mo mo mo mo mo mo
(d) Determining what room rate to charge to achieve a target level of profit. mo mo mo mo mo mo mo mo mo mo mo mo
(e) Determining whether a seasonal hotel should be closed down during the qui mo mo mo mo mo mo mo mo mo mo mo
et season. m o
(f) Determining whether a restaurant manager is performing well. mo mo mo mo mo mo mo
Problem 1.4: Solution mo mo
a) High product perishability signifies that an item cannot be held in inventory for sal
mo mo mo mo mo mo mo mo mo mo mo mo mo
e at a later time. Food items have a limited life in inventory because of their rapid p
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
hysical deterioration. Room nights and conference facilities cannot be placed in invent
mo mo mo mo mo mo mo mo mo mo mo
ory because they relate to a particular time period that expires.
mo mo mo mo mo mo mo mo mo mo
b) The absolute perishability of rooms, conference and banquet facilities and the relati
mo mo mo mo mo mo mo mo mo mo mo
ve perishability of food underlines the importance of accurate hotel demand forecasting
mo mo mo mo mo mo mo mo mo mo mo
as part of the budgeting process. Generally, the most important aspect of forecasting
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
is room occupancy, as room sales drive sales levels of other hotel services. Accurate r
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
estaurant forecasting provides the basis for maintaining a full menu of options while a
mo mo mo mo mo mo mo mo mo mo mo mo mo
lso minimising the cost of food wastage.
mo mo mo mo mo mo
3
, AccountingmoEssentialsmoformoHospitalitymoManagersmo(C.moGuild Solutions
ing)
Problem 1.5: Solution mo mo
Fixed costs are costs that do not vary as a function
mo mo mo mo mo mo mo mo mo mo mo of sales activity levels. Hotels inv
mo mo mo mo mo
olve considerable investment in fixed assets such as
mo mo mo mo mo mo mo mo buildings on prime land as well a
mo mo mo mo mo mo
s extensive furnishings, fittings and equipment. This
mo mo mo mo mo mo mo investment generates high rent an mo mo mo mo
d depreciation costs, which together with significant
mo mo mo mo mo mo mo salary costs, result in a high fixed
mo mo mo mo mo mo
cost structure for hotels.
mo mo mo mo
Problem 1.6: Solution mo mo
a) Major hotel activities include room housekeeping, restaurant food preparation and s
mo mo mo mo mo mo mo mo mo mo
ervice as well as bar service. Despite the advent of the machine and computer age, th
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
e physical aspect of all of these activities has changed little over the last fifty years, a
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
s they continue to have a high labour component.
mo mo mo mo mo mo mo mo
b) High labour intensive activities in hotels signifies the importance of performance m
mo mo mo mo mo mo mo mo mo mo mo
easures that focus on labour productivity. Such performance indices include restaurant
mo mo mo mo mo mo mo mo mo mo mo
covers per employee hour worked and restaurant sales per employee hour worked. Mo
mo mo mo mo mo mo mo mo mo mo mo mo
nitoring differences between actual labour cost and budgeted labour cost represents an
mo mo mo mo mo mo mo mo mo mo mo
other dimension of labour cost management. An appropriate analysis of the difference
mo mo mo mo mo mo mo mo mo mo mo mo
between budgeted and actual labour cost enables a distinction to be drawn between la
mo mo mo mo mo mo mo mo mo mo mo mo mo
bour rate and labour efficiency factors.
mo mo mo mo mo
Problem 1.7: Solution mo mo
Financial accounting concerns the preparation of financial reports for external users s
mo mo mo mo mo mo mo mo mo mo mo
uch as shareholders, banks and government authorities. In order for these financial rep
mo mo mo mo mo mo mo mo mo mo mo mo
orts to be meaningful, it is important that they are produced in a standardised way an
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
d are seen to be reliable. Management accounting concerns the provision of financial
mo mo mo mo mo mo mo mo mo mo mo mo
moinformation to internal management. This information is designed to help managers in
mo mo mo mo mo mo mo mo mo mo mo
motheir decision making and control of businesses. Financial information sought by hote
mo mo mo mo mo mo mo mo mo mo mo
l managers includes determining the cost of providing a meal to inform the menu pric
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
ing decision, determining how many delegates need to attend a conference in order to
mo mo mo mo mo mo mo mo mo mo mo mo mo m
oachieve break even, and determining what level of profit is made by each selling unit
mo mo mo mo mo mo mo mo mo mo mo mo mo mo
moof a hotel to inform any rationalisation decision to drop a unit. The provision of all t
mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo mo
hese types of financial information falls within the scope of management accounting.
mo mo mo mo mo mo mo mo mo mo mo
Problem 1.8: Solution mo mo
The main accounting information users are:
mo mo mo mo mo
• Managers within the company being accounted for. Managers use account
mo mo mo mo mo mo mo mo mo
ing information in planning and controlling business activities.
mo mo mo mo mo mo mo
4
