Accounting Essentials for Hospitality Managers, 3e Chris Guilding
L L L L L L L
L (Solutions Manual All Chapters, 100% Original Verified, A+ Grade)
L L L L L L L L
Solutions – Accounting Essentials for Hospitality L L L L L
Managers (3rd edition) L L L
CHAPTER 1 L
Introduction
Problem 1.1: Solution L L
a) Functional interdependency exists when the performance of one functional area is
L L L L L L L L L L
affected by the performance of a separate functional area. For example, in a hotel complex
L L L L L L L L L L L L L L L
that is dominated by a casino, the success of the rooms and food and beverage departments
L L L L L L L L L L L L L L L L
will be affected by the success of the casino operations in attracting clients to the complex.
L L L L L L L L L L L L L L L L
b) Functional interdependency is an important issue for the designers of a hotel’s system of
L L L L L L L L L L L L L
accountability because care should be taken to hold a manager accountable for only those
L L L L L L L L L L L L L L
aspects of the hotel’s performance that he or she can influence. For example, the heads of
L L L L L L L L L L L L L L L L
rooms and food and beverage departments should not be held accountable for a decrease in
L L L L L L L L L L L L L L L
their room sales if it is caused by reduced casino activity.
L L L L L L L L L L L
Problem 1.2: Solution L L
a) The four main dimensions of sales volatility in the hotel industry are:
L L L L L L L L L L L
1. economic cycle induced sales volatility, L L L L
2. seasonal sales volatility, L L
3. weekly sales volatility, L L
4. intra-day sales volatility. L L
b) The implications that these dimensions of sales volatility carry for hotel accounting
L L L L L L L L L L L
systems are as follows:
L L L L
1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic
L L L L L L L L L L
conditions highlights the importance of hotels carefully forecasting economic cycles as
L L L L L L L L L L L
part of the annual budgeting process.
L L L L L L
2. Seasonal sales volatility: Three accounting implications arise:
L L L L L L
• Seasonal sales volatility can be so severe to warrant temporary closure for some L L L L L L L L L L L L
resort properties. This possibility of having to make a closure decision signifies that
L L L L L L L L L L L L L
cost and revenue data should be recorded in a manner that will enable a well
L L L L L L L L L L L L L L L
informed financial analysis of the pros and cons of closing.
L L L L L L L L L L
• Seasonal sales volatility can also pose particular cash management issues. DuringL L L L L L L L L L
the middle and tail-end of the busy seasons, surplus cash balances are likely to
L L L L L L L L L L L L L L
result, while in the off-season and the build up to the busy season, deficit cash
L L L L L L L L L L L L L L L
balances are likely to result. Careful cash budgeting will therefore need
L L L L L L L L L L L
to beconducted. L L L
1
,Accounting Essentials for Hospitality Managers (C. Guilding)
L L L L L L Solutions
Seasonal sales volatility will also affect price discounting decisions. To ensure such
• L L L L L L L L L L L
decisions are well informed, careful forecasting as part of the annual budgetary
L L L L L L L L L L L L
process, will have to be conducted.
L L L L L L
3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform
L L L L L L L L L L
management’s decision making with respect to the amount and timing of room rate
L L L L L L L L L L L L L
discounting, staffing needs as well as restaurant purchasing needs.
L L L L L L L L L
4. Intra-day sales volatility: Intra-day demand volatility has led to widely-used pricing
L L L L L L L L L L
strategies such as “early bird specials” in restaurants and “happy hours” in bars. Records
L L L L L L L L L L L L L L
concerning demand at different times of the day will have to be maintained in order to
L L L L L L L L L L L L L L L L
inform such hotel pricing issues.
L L L L L
Problem 1.3: Solution L L
Examples of business decisions requiring the use of financial accounting data include:
L L L L L L L L L L L
(a) A bank manager deciding whether to lend money to a company.
L L L L L L L L L L
(b) A shareholder deciding whether to sell her shares due to a fear that the company
L L L L L L L L L L L L L L
she has invested in might go bankrupt.
L L L L L L L
(c) A potential shareholder thinking about purchasing shares in a company
L L L L L L L L L
andinterested in determining if the company is profitable.
L L L L L L L L L
Examples of business decisions requiring the use of management accounting data include:
L L L L L L L L L L L
(a) Determining whether accounts are being collected on time. L L L L L L L
(b) Determining whether the business will have sufficient cash over the next year to L L L L L L L L L L L L
avoid the need to arrange a line of credit.
L L L L L L L L L
(c) Determining whether a drinks vending machine or a confectionary L L L L L L L L
vendingmachine should be installed in a hotel’s foyer area.
L L L L L L L L L L
(d) Determining what room rate to charge to achieve a target level of profit. L L L L L L L L L L L L
(e) Determining whether a seasonal hotel should be closed down during the L L L L L L L L L L
quietseason. L L
(f) Determining whether a restaurant manager is performing well. L L L L L L L
Problem 1.4: Solution L L
a) High product perishability signifies that an item cannot be held in inventory for sale at a
L L L L L L L L L L L L L L L
later time. Food items have a limited life in inventory because of their rapid physical
L L L L L L L L L L L L L L L
deterioration. Room nights and conference facilities cannot be placed in inventory because
L L L L L L L L L L L L
they relate to a particular time period that expires.
L L L L L L L L L
b) The absolute perishability of rooms, conference and banquet facilities and the relative
L L L L L L L L L L L
perishability of food underlines the importance of accurate hotel demand forecasting as part
L L L L L L L L L L L L L
of the budgeting process. Generally, the most important aspect of forecasting is room
L L L L L L L L L L L L L
occupancy, as room sales drive sales levels of other hotel services. Accurate restaurant
L L L L L L L L L L L L L
forecasting provides the basis for maintaining a full menu of options while also minimising
L L L L L L L L L L L L L L
the cost of food wastage.
L L L L L
2
,Accounting Essentials for Hospitality Managers (C. Guilding)
L L L L L L Solutions
Problem 1.5: Solution L L
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve
L L L L L L L L L L L L L L L L
considerable investment in fixed assets such as buildings on prime land as well as extensive
L L L L L L L L L L L L L L L
furnishings, fittings and equipment. This investment generates high rent and depreciation
L L L L L L L L L L L
costs, which together with significant salary costs, result in a high fixed cost structure for
L L L L L L L L L L L L L L L
hotels.
L
Problem 1.6: Solution L L
a) Major hotel activities include room housekeeping, restaurant food preparation and
L L L L L L L L L
service as well as bar service. Despite the advent of the machine and computer age, the
L L L L L L L L L L L L L L L L
physical aspect of all of these activities has changed little over the last fifty years, as they
L L L L L L L L L L L L L L L L L
continue to have a high labour component.
L L L L L L L
b) High labour intensive activities in hotels signifies the importance of performance
L L L L L L L L L L
measures that focus on labour productivity. Such performance indices include restaurant
L L L L L L L L L L L
covers per employee hour worked and restaurant sales per employee hour worked.
L L L L L L L L L L L L
Monitoring differences between actual labour cost and budgeted labour cost represents
L L L L L L L L L L L
another dimension of labour cost management. An appropriate analysis of the difference
L L L L L L L L L L L L
between budgeted and actual labour cost enables a distinction to be drawn between labour
L L L L L L L L L L L L L L
rate and labour efficiency factors.
L L L L L
Problem 1.7: Solution L L
Financial accounting concerns the preparation of financial reports for external users such as
L L L L L L L L L L L L
shareholders, banks and government authorities. In order for these financial reports to be
L L L L L L L L L L L L L
meaningful, it is important that they are produced in a standardised way and are seen to be
L L L L L L L L L L L L L L L L L
reliable. Management accounting concerns the provision of financial information to
L L L L L L L L L L
internal management. This information is designed to help managers in their
L L L L L L L L L L L
Ldecisionmaking and control of businesses. Financial information sought by hotel managers
L L L L L L L L L L L
includes determining the cost of providing a meal to inform the menu pricing decision,
L L L L L L L L L L L L L L
determining how many delegates need to attend a conference in order to achieve break even,
L L L L L L L L L L L L L L L
and determining what level of profit is made by each selling unit of a hotel to inform any
L L L L L L L L L L L L L L L L L L
rationalisation decision to drop a unit. The provision of all these types of financial
L L L L L L L L L L L L L L
information falls within the scope of management accounting.
L L L L L L L L
Problem 1.8: Solution L L
The main accounting information users are:
L L L L L
• Managers within the company being accounted for. Managers use accounting L L L L L L L L L
information in planning and controlling business activities.
L L L L L L L
3
, Accounting Essentials for Hospitality Managers (C. Guilding)
L L L L L L Solutions
• Outside parties such as shareholders, potential shareholders, creditors and
L L L L L L L L
government agencies. These parties use accounting information to make investing,
L L L L L L L L L L
lending, taxing and regulatory decisions.
L L L L L
Problem 1.9: Solution L L
Accounting reports represent the main source of information that the investing community
L L L L L L L L L L L
uses when attempting to make wise equity investments. A lack of confidence in accounting
L L L L L L L L L L L L L L
systems is bound to translate into a reluctance to invest in companies. This will inhibit the
L L L L L L L L L L L L L L L L
ability of economically viable companies to expand, which in turn will carry negative
L L L L L L L L L L L L L
implications for employment, availability of goods and services, and our standard of living.
L L L L L L L L L L L L L
It is critically important that a reliable financial accounting system that engenders trust and
L L L L L L L L L L L L L L
encourages corporate development is established, otherwise economic activity suffers.
L L L L L L L L L
Problem 1.10: Solution L L
Any of the elements referred to in Box 1.3 could be used as an answer to this question.
L L L L L L L L L L L L L L L L L
Problem 1.11: Solution L L
Amongst the advantages deriving from the USALI are the following:
L L L L L L L L L
• it can save on accounting system design costs as it represents a “blueprint”
L L L L L L L L L L L L
accounting system that can be adopted by any business in the hotel industry,
L L L L L L L L L L L L L
• the system can be viewed as “state of the art” as it benefits from the accumulated
L L L L L L L L L L L L L L L
experience of the parties that have contributed to the system’s development over
L L L L L L L L L L L L
many years, L L
• by promoting consistent account classification schemes as well as formatting of
L L L L L L L L L L
reports, it facilitates comparison across hotels,
L L L L L L
• it represents a common point of reference for hotels within the same hotel group.
L L L L L L L L L L L L L
Problem 1.12: Solution L L
3 main organizational forms and their main differences
L L L L L L L
Characteristics Sole proprietorship L Partnership Company
Number of owners L L One Two or more L L Generally many L
Business size L Small Generally small L Larger and can be very L L L L
large
L
Key decision makers
L L Owner Partners Board of directors L L
Owner liability L Unlimited Unlimited Limited
Organisation life L Limited Limited On-going
4
L L L L L L L
L (Solutions Manual All Chapters, 100% Original Verified, A+ Grade)
L L L L L L L L
Solutions – Accounting Essentials for Hospitality L L L L L
Managers (3rd edition) L L L
CHAPTER 1 L
Introduction
Problem 1.1: Solution L L
a) Functional interdependency exists when the performance of one functional area is
L L L L L L L L L L
affected by the performance of a separate functional area. For example, in a hotel complex
L L L L L L L L L L L L L L L
that is dominated by a casino, the success of the rooms and food and beverage departments
L L L L L L L L L L L L L L L L
will be affected by the success of the casino operations in attracting clients to the complex.
L L L L L L L L L L L L L L L L
b) Functional interdependency is an important issue for the designers of a hotel’s system of
L L L L L L L L L L L L L
accountability because care should be taken to hold a manager accountable for only those
L L L L L L L L L L L L L L
aspects of the hotel’s performance that he or she can influence. For example, the heads of
L L L L L L L L L L L L L L L L
rooms and food and beverage departments should not be held accountable for a decrease in
L L L L L L L L L L L L L L L
their room sales if it is caused by reduced casino activity.
L L L L L L L L L L L
Problem 1.2: Solution L L
a) The four main dimensions of sales volatility in the hotel industry are:
L L L L L L L L L L L
1. economic cycle induced sales volatility, L L L L
2. seasonal sales volatility, L L
3. weekly sales volatility, L L
4. intra-day sales volatility. L L
b) The implications that these dimensions of sales volatility carry for hotel accounting
L L L L L L L L L L L
systems are as follows:
L L L L
1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic
L L L L L L L L L L
conditions highlights the importance of hotels carefully forecasting economic cycles as
L L L L L L L L L L L
part of the annual budgeting process.
L L L L L L
2. Seasonal sales volatility: Three accounting implications arise:
L L L L L L
• Seasonal sales volatility can be so severe to warrant temporary closure for some L L L L L L L L L L L L
resort properties. This possibility of having to make a closure decision signifies that
L L L L L L L L L L L L L
cost and revenue data should be recorded in a manner that will enable a well
L L L L L L L L L L L L L L L
informed financial analysis of the pros and cons of closing.
L L L L L L L L L L
• Seasonal sales volatility can also pose particular cash management issues. DuringL L L L L L L L L L
the middle and tail-end of the busy seasons, surplus cash balances are likely to
L L L L L L L L L L L L L L
result, while in the off-season and the build up to the busy season, deficit cash
L L L L L L L L L L L L L L L
balances are likely to result. Careful cash budgeting will therefore need
L L L L L L L L L L L
to beconducted. L L L
1
,Accounting Essentials for Hospitality Managers (C. Guilding)
L L L L L L Solutions
Seasonal sales volatility will also affect price discounting decisions. To ensure such
• L L L L L L L L L L L
decisions are well informed, careful forecasting as part of the annual budgetary
L L L L L L L L L L L L
process, will have to be conducted.
L L L L L L
3. Weekly sales volatility: Accurate forecasting of weekly sales volatility will inform
L L L L L L L L L L
management’s decision making with respect to the amount and timing of room rate
L L L L L L L L L L L L L
discounting, staffing needs as well as restaurant purchasing needs.
L L L L L L L L L
4. Intra-day sales volatility: Intra-day demand volatility has led to widely-used pricing
L L L L L L L L L L
strategies such as “early bird specials” in restaurants and “happy hours” in bars. Records
L L L L L L L L L L L L L L
concerning demand at different times of the day will have to be maintained in order to
L L L L L L L L L L L L L L L L
inform such hotel pricing issues.
L L L L L
Problem 1.3: Solution L L
Examples of business decisions requiring the use of financial accounting data include:
L L L L L L L L L L L
(a) A bank manager deciding whether to lend money to a company.
L L L L L L L L L L
(b) A shareholder deciding whether to sell her shares due to a fear that the company
L L L L L L L L L L L L L L
she has invested in might go bankrupt.
L L L L L L L
(c) A potential shareholder thinking about purchasing shares in a company
L L L L L L L L L
andinterested in determining if the company is profitable.
L L L L L L L L L
Examples of business decisions requiring the use of management accounting data include:
L L L L L L L L L L L
(a) Determining whether accounts are being collected on time. L L L L L L L
(b) Determining whether the business will have sufficient cash over the next year to L L L L L L L L L L L L
avoid the need to arrange a line of credit.
L L L L L L L L L
(c) Determining whether a drinks vending machine or a confectionary L L L L L L L L
vendingmachine should be installed in a hotel’s foyer area.
L L L L L L L L L L
(d) Determining what room rate to charge to achieve a target level of profit. L L L L L L L L L L L L
(e) Determining whether a seasonal hotel should be closed down during the L L L L L L L L L L
quietseason. L L
(f) Determining whether a restaurant manager is performing well. L L L L L L L
Problem 1.4: Solution L L
a) High product perishability signifies that an item cannot be held in inventory for sale at a
L L L L L L L L L L L L L L L
later time. Food items have a limited life in inventory because of their rapid physical
L L L L L L L L L L L L L L L
deterioration. Room nights and conference facilities cannot be placed in inventory because
L L L L L L L L L L L L
they relate to a particular time period that expires.
L L L L L L L L L
b) The absolute perishability of rooms, conference and banquet facilities and the relative
L L L L L L L L L L L
perishability of food underlines the importance of accurate hotel demand forecasting as part
L L L L L L L L L L L L L
of the budgeting process. Generally, the most important aspect of forecasting is room
L L L L L L L L L L L L L
occupancy, as room sales drive sales levels of other hotel services. Accurate restaurant
L L L L L L L L L L L L L
forecasting provides the basis for maintaining a full menu of options while also minimising
L L L L L L L L L L L L L L
the cost of food wastage.
L L L L L
2
,Accounting Essentials for Hospitality Managers (C. Guilding)
L L L L L L Solutions
Problem 1.5: Solution L L
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve
L L L L L L L L L L L L L L L L
considerable investment in fixed assets such as buildings on prime land as well as extensive
L L L L L L L L L L L L L L L
furnishings, fittings and equipment. This investment generates high rent and depreciation
L L L L L L L L L L L
costs, which together with significant salary costs, result in a high fixed cost structure for
L L L L L L L L L L L L L L L
hotels.
L
Problem 1.6: Solution L L
a) Major hotel activities include room housekeeping, restaurant food preparation and
L L L L L L L L L
service as well as bar service. Despite the advent of the machine and computer age, the
L L L L L L L L L L L L L L L L
physical aspect of all of these activities has changed little over the last fifty years, as they
L L L L L L L L L L L L L L L L L
continue to have a high labour component.
L L L L L L L
b) High labour intensive activities in hotels signifies the importance of performance
L L L L L L L L L L
measures that focus on labour productivity. Such performance indices include restaurant
L L L L L L L L L L L
covers per employee hour worked and restaurant sales per employee hour worked.
L L L L L L L L L L L L
Monitoring differences between actual labour cost and budgeted labour cost represents
L L L L L L L L L L L
another dimension of labour cost management. An appropriate analysis of the difference
L L L L L L L L L L L L
between budgeted and actual labour cost enables a distinction to be drawn between labour
L L L L L L L L L L L L L L
rate and labour efficiency factors.
L L L L L
Problem 1.7: Solution L L
Financial accounting concerns the preparation of financial reports for external users such as
L L L L L L L L L L L L
shareholders, banks and government authorities. In order for these financial reports to be
L L L L L L L L L L L L L
meaningful, it is important that they are produced in a standardised way and are seen to be
L L L L L L L L L L L L L L L L L
reliable. Management accounting concerns the provision of financial information to
L L L L L L L L L L
internal management. This information is designed to help managers in their
L L L L L L L L L L L
Ldecisionmaking and control of businesses. Financial information sought by hotel managers
L L L L L L L L L L L
includes determining the cost of providing a meal to inform the menu pricing decision,
L L L L L L L L L L L L L L
determining how many delegates need to attend a conference in order to achieve break even,
L L L L L L L L L L L L L L L
and determining what level of profit is made by each selling unit of a hotel to inform any
L L L L L L L L L L L L L L L L L L
rationalisation decision to drop a unit. The provision of all these types of financial
L L L L L L L L L L L L L L
information falls within the scope of management accounting.
L L L L L L L L
Problem 1.8: Solution L L
The main accounting information users are:
L L L L L
• Managers within the company being accounted for. Managers use accounting L L L L L L L L L
information in planning and controlling business activities.
L L L L L L L
3
, Accounting Essentials for Hospitality Managers (C. Guilding)
L L L L L L Solutions
• Outside parties such as shareholders, potential shareholders, creditors and
L L L L L L L L
government agencies. These parties use accounting information to make investing,
L L L L L L L L L L
lending, taxing and regulatory decisions.
L L L L L
Problem 1.9: Solution L L
Accounting reports represent the main source of information that the investing community
L L L L L L L L L L L
uses when attempting to make wise equity investments. A lack of confidence in accounting
L L L L L L L L L L L L L L
systems is bound to translate into a reluctance to invest in companies. This will inhibit the
L L L L L L L L L L L L L L L L
ability of economically viable companies to expand, which in turn will carry negative
L L L L L L L L L L L L L
implications for employment, availability of goods and services, and our standard of living.
L L L L L L L L L L L L L
It is critically important that a reliable financial accounting system that engenders trust and
L L L L L L L L L L L L L L
encourages corporate development is established, otherwise economic activity suffers.
L L L L L L L L L
Problem 1.10: Solution L L
Any of the elements referred to in Box 1.3 could be used as an answer to this question.
L L L L L L L L L L L L L L L L L
Problem 1.11: Solution L L
Amongst the advantages deriving from the USALI are the following:
L L L L L L L L L
• it can save on accounting system design costs as it represents a “blueprint”
L L L L L L L L L L L L
accounting system that can be adopted by any business in the hotel industry,
L L L L L L L L L L L L L
• the system can be viewed as “state of the art” as it benefits from the accumulated
L L L L L L L L L L L L L L L
experience of the parties that have contributed to the system’s development over
L L L L L L L L L L L L
many years, L L
• by promoting consistent account classification schemes as well as formatting of
L L L L L L L L L L
reports, it facilitates comparison across hotels,
L L L L L L
• it represents a common point of reference for hotels within the same hotel group.
L L L L L L L L L L L L L
Problem 1.12: Solution L L
3 main organizational forms and their main differences
L L L L L L L
Characteristics Sole proprietorship L Partnership Company
Number of owners L L One Two or more L L Generally many L
Business size L Small Generally small L Larger and can be very L L L L
large
L
Key decision makers
L L Owner Partners Board of directors L L
Owner liability L Unlimited Unlimited Limited
Organisation life L Limited Limited On-going
4
