Accounting Essentials for Hospitality Managers, 3e Chris Guilding
(Solutions Manual All Chapters, 100% Original Verified, A+ Grade)
Solutions – Accounting Essentials for Hospitality
Managers (3rd edition)
CHAPTER 1
Introduction
Problem 1.1: Solution
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.
1
,Accounting Essentials for Hospitality Managers (C. Guilding) Solutions
• 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.
Problem 1.4: Solution
a) High product perishability signifies that an item cannot be held in inventory for sale at a
later time. Food items have a limited life in inventory because of their rapid physical
deterioration. Room nights and conference facilities cannot be placed in inventory because
they relate to a particular time period that expires.
b) The absolute perishability of rooms, conference and banquet facilities and the relative
perishability of food underlines the importance of accurate hotel demand forecasting as part
of the budgeting process. Generally, the most important aspect of forecasting is room
occupancy, as room sales drive sales levels of other hotel services. Accurate restaurant
forecasting provides the basis for maintaining a full menu of options while also minimising
the cost of food wastage.
2
,Accounting Essentials for Hospitality Managers (C. Guilding) Solutions
Problem 1.5: Solution k1 k1
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
considerable investment in fixed assets such as buildings on prime land as well as
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
extensive furnishings, fittings and equipment. This investment generates high rent and
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
depreciation costs, which together with significant salary costs, result in a high fixed cost
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
structure for hotels.
k1 k1 k1
Problem 1.6: Solution k1 k1
a) Major hotel activities include room housekeeping, restaurant food preparation and
k1 k1 k1 k1 k1 k1 k1 k1 k1
service as well as bar service. Despite the advent of the machine and computer age, the
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
physical aspect of all of these activities has changed little over the last fifty years, as
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
they continue to have a high labour component.
k1 k1 k1 k1 k1 k1 k1 k1
b) High labour intensive activities in hotels signifies the importance of performance
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
measures that focus on labour productivity. Such performance indices include restaurant
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
covers per employee hour worked and restaurant sales per employee hour worked.
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
Monitoring differences between actual labour cost and budgeted labour cost represents
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
another dimension of labour cost management. An appropriate analysis of the difference
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
between budgeted and actual labour cost enables a distinction to be drawn between
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
labour rate and labour efficiency factors.
k1 k1 k1 k1 k1 k1
Problem 1.7: Solution k1 k1
Financial accounting concerns the preparation of financial reports for external users such
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
as shareholders, banks and government authorities. In order for these financial reports to
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
be meaningful, it is important that they are produced in a standardised way and are seen
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
to be reliable. Management accounting concerns the provision of financial information
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
to internal management. This information is designed to help managers in their decision
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
making and control of businesses. Financial information sought by hotel managers
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
includes determining the cost of providing a meal to inform the menu pricing decision,
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
determining how many delegates need to attend a conference in order to achieve break
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
even, and determining what level of profit is made by each selling unit of a hotel to
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
inform any rationalisation decision to drop a unit. The provision of all these types of
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
financial information falls within the scope of management accounting.
k1 k1 k1 k1 k1 k1 k1 k1 k1
Problem 1.8: Solution k1 k1
The main accounting information users are:
k1 k1 k1 k1 k1
• Managers within the company being accounted for. Managers use k 1 k 1 k 1 k 1 k 1 k 1 k 1 k 1
accounting information in planning and controlling business activities.
k 1 k 1 k1 k1 k1 k1 k1 k1
3
, Accounting Essentials for Hospitality Managers (C. Guilding) Solutions
• Outside parties such as shareholders, potential shareholders, creditors and
k1 k1 k1 k1 k1 k1 k1 k1
government agencies. These parties use accounting information to make
k1 k1 k1 k1 k1 k1 k1 k1 k1
investing, lending, taxing and regulatory decisions.
k1 k1 k1 k1 k1 k1
Problem 1.9: Solution k1 k1
Accounting reports represent the main source of information that the investing
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
community uses when attempting to make wise equity investments. A lack of confidence
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
in accounting systems is bound to translate into a reluctance to invest in companies. This
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
will inhibit the ability of economically viable companies to expand, which in turn will
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
carry negative implications for employment, availability of goods and services, and our
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
standard of living. It is critically important that a reliable financial accounting system
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
that engenders trust and encourages corporate development is established, otherwise
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
economic activity suffers.
k1 k1 k1
Problem 1.10: Solution k1 k1
Any of the elements referred to in Box 1.3 could be used as an answer to this question.
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
Problem 1.11: Solution k1 k1
Amongst the advantages deriving from the USALI are the following:
k1 k1 k1 k1 k1 k1 k1 k1 k1
• it can save on accounting system design costs as it represents a “blueprint”
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
accounting system that can be adopted by any business in the hotel industry,
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
• the system can be viewed as “state of the art” as it benefits from the
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
accumulated experience of the parties that have contributed to the system’s
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
development over many years, k1 k1 k1 k1
• by promoting consistent account classification schemes as well as formatting of
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
reports, it facilitates comparison across hotels,
k1 k1 k1 k1 k1 k1
• it represents a common point of reference for hotels within the same hotel group.
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
Problem 1.12: Solution k1 k1
3 main organizational forms and their main differences
k1 k1 k1 k1 k1 k1 k1
Characteristics Sole proprietorship k1 Partnership Company
Number of owners k1 k1 One Two or morek1 k1 Generally many k1
Business size k1 Small Generally small k1 Larger and can be very k1 k1 k1 k1
large
k1
Key decision makers
k1 k1 Owner Partners Board of directors k1 k1
Owner liability k1 Unlimited Unlimited Limited
Organisation life k1 Limited Limited On-going
4
(Solutions Manual All Chapters, 100% Original Verified, A+ Grade)
Solutions – Accounting Essentials for Hospitality
Managers (3rd edition)
CHAPTER 1
Introduction
Problem 1.1: Solution
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.
1
,Accounting Essentials for Hospitality Managers (C. Guilding) Solutions
• 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.
Problem 1.4: Solution
a) High product perishability signifies that an item cannot be held in inventory for sale at a
later time. Food items have a limited life in inventory because of their rapid physical
deterioration. Room nights and conference facilities cannot be placed in inventory because
they relate to a particular time period that expires.
b) The absolute perishability of rooms, conference and banquet facilities and the relative
perishability of food underlines the importance of accurate hotel demand forecasting as part
of the budgeting process. Generally, the most important aspect of forecasting is room
occupancy, as room sales drive sales levels of other hotel services. Accurate restaurant
forecasting provides the basis for maintaining a full menu of options while also minimising
the cost of food wastage.
2
,Accounting Essentials for Hospitality Managers (C. Guilding) Solutions
Problem 1.5: Solution k1 k1
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
considerable investment in fixed assets such as buildings on prime land as well as
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
extensive furnishings, fittings and equipment. This investment generates high rent and
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
depreciation costs, which together with significant salary costs, result in a high fixed cost
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
structure for hotels.
k1 k1 k1
Problem 1.6: Solution k1 k1
a) Major hotel activities include room housekeeping, restaurant food preparation and
k1 k1 k1 k1 k1 k1 k1 k1 k1
service as well as bar service. Despite the advent of the machine and computer age, the
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
physical aspect of all of these activities has changed little over the last fifty years, as
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
they continue to have a high labour component.
k1 k1 k1 k1 k1 k1 k1 k1
b) High labour intensive activities in hotels signifies the importance of performance
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
measures that focus on labour productivity. Such performance indices include restaurant
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
covers per employee hour worked and restaurant sales per employee hour worked.
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
Monitoring differences between actual labour cost and budgeted labour cost represents
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
another dimension of labour cost management. An appropriate analysis of the difference
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
between budgeted and actual labour cost enables a distinction to be drawn between
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
labour rate and labour efficiency factors.
k1 k1 k1 k1 k1 k1
Problem 1.7: Solution k1 k1
Financial accounting concerns the preparation of financial reports for external users such
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
as shareholders, banks and government authorities. In order for these financial reports to
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
be meaningful, it is important that they are produced in a standardised way and are seen
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
to be reliable. Management accounting concerns the provision of financial information
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
to internal management. This information is designed to help managers in their decision
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
making and control of businesses. Financial information sought by hotel managers
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
includes determining the cost of providing a meal to inform the menu pricing decision,
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
determining how many delegates need to attend a conference in order to achieve break
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
even, and determining what level of profit is made by each selling unit of a hotel to
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
inform any rationalisation decision to drop a unit. The provision of all these types of
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
financial information falls within the scope of management accounting.
k1 k1 k1 k1 k1 k1 k1 k1 k1
Problem 1.8: Solution k1 k1
The main accounting information users are:
k1 k1 k1 k1 k1
• Managers within the company being accounted for. Managers use k 1 k 1 k 1 k 1 k 1 k 1 k 1 k 1
accounting information in planning and controlling business activities.
k 1 k 1 k1 k1 k1 k1 k1 k1
3
, Accounting Essentials for Hospitality Managers (C. Guilding) Solutions
• Outside parties such as shareholders, potential shareholders, creditors and
k1 k1 k1 k1 k1 k1 k1 k1
government agencies. These parties use accounting information to make
k1 k1 k1 k1 k1 k1 k1 k1 k1
investing, lending, taxing and regulatory decisions.
k1 k1 k1 k1 k1 k1
Problem 1.9: Solution k1 k1
Accounting reports represent the main source of information that the investing
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
community uses when attempting to make wise equity investments. A lack of confidence
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
in accounting systems is bound to translate into a reluctance to invest in companies. This
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
will inhibit the ability of economically viable companies to expand, which in turn will
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
carry negative implications for employment, availability of goods and services, and our
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
standard of living. It is critically important that a reliable financial accounting system
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
that engenders trust and encourages corporate development is established, otherwise
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
economic activity suffers.
k1 k1 k1
Problem 1.10: Solution k1 k1
Any of the elements referred to in Box 1.3 could be used as an answer to this question.
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
Problem 1.11: Solution k1 k1
Amongst the advantages deriving from the USALI are the following:
k1 k1 k1 k1 k1 k1 k1 k1 k1
• it can save on accounting system design costs as it represents a “blueprint”
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
accounting system that can be adopted by any business in the hotel industry,
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
• the system can be viewed as “state of the art” as it benefits from the
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
accumulated experience of the parties that have contributed to the system’s
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
development over many years, k1 k1 k1 k1
• by promoting consistent account classification schemes as well as formatting of
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
reports, it facilitates comparison across hotels,
k1 k1 k1 k1 k1 k1
• it represents a common point of reference for hotels within the same hotel group.
k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1 k1
Problem 1.12: Solution k1 k1
3 main organizational forms and their main differences
k1 k1 k1 k1 k1 k1 k1
Characteristics Sole proprietorship k1 Partnership Company
Number of owners k1 k1 One Two or morek1 k1 Generally many k1
Business size k1 Small Generally small k1 Larger and can be very k1 k1 k1 k1
large
k1
Key decision makers
k1 k1 Owner Partners Board of directors k1 k1
Owner liability k1 Unlimited Unlimited Limited
Organisation life k1 Limited Limited On-going
4
