Class notes Managerial Accounting

Managerial Accounting:
Workshop 1
Income Statement / USALI
 Sales = price * quantity
 Costs = (v * quantity) + fixed costs
Sales - costs = result (profit or loss)

Costs:
Fixed = always the same (rent)
Variable = depends on revenue

Direct / operating = can be linked directly to department (kitchen staff salary)
Indirect / overhead = can’t be linked directly to department (general manager salary)
(overhead costs)

USALI-format
Departmental sales
- operating expenses (directly linked to department)
= departmental profit / income (rooms + F&B + others)
- undistributed operating expenses (=overhead)
= gross operating profit (G.O.P.)
- fixed charges (fixed amount per period)
= NET profit / Overall Income (before taxes)

Gross profit = departmental sales - cost of sales
revenue - costs of goods sold

Cost of F&B sales is also included in total operating expenses- F&B

Workshop 2:
Budget variance analysis
Variance = difference
Comparing budgeted with actual sales or costs
Sales = price * quantity variance
 Higher than expected = Favourable (F)
 Lower than expected = Unfavourable (U)
Costs = cost * quantity variance
 Higher than expected = Unfavourable (U)
 Lower than expected = Favourable (F)

Revenue: Price Variance = Price difference (AP - BP) * Actual Quantity
Quantity Variance = Quantity difference (AQ - BQ)* Budgeted Price
Expenses: Cost Variance = Cost difference (AC - BC) * Actual Quantity
Quantity Variance = Quantity difference (AQ - BQ) * Budgeted Cost
BUDGET VARIANCE = (AP/AC X AQ) - (BP/BC X AQ)

AP = actual price BP = budgeted price
AC = actual cost BC = budgeted cost
AQ = actual quantity BQ = budgeted quantity

AC and AQ lower than BC and BQ ---> Positive
AP and AQ lower than BP and BQ ---> Negative

, Workshop 3:
Elasticity
The relative change in quantity as a consequence of a relative change of price
 Δ = ((new-old) : old) x 100%
 Ed = (%ΔQ) : (%ΔP)  Outcome is negative!

Perfectly inelastic:
No matter the price, always the same quantity  Medicins

Perfect elasticity:
Slight change in price, huge change in quantity  Ed = -∞  Gas Stations

Unit Elasticity:
Price 10% up -> Quantity 10% up
Price 10% down -> Quantity 10% down
Ed = -1

-1 < Ed < 0 Ed < -1
Relatively Inelastic Relatively Elastic

Elasticity is all about relative (percentages) changes, not absolute (numbers)

Workshop 4:
Room pricing
3 Approaches to cost based room pricing:
How to determine an ADR?

1. The rule of a thousand approach (for projects)
 determine investment
 determine which part of investment is related to rooms
 determine investment per room
 divide investment per room by 1000
2. Relative room size approach (for hotels with different room sizes)
 assess the surface area of rooms sold daily
 determine average revenue required per day
 determine average rate to charge each square meter of room space
 determine specific rated to charge each room type
3. The bottom up approach (when you have all information of hotel)
 Profit for investors
investment x profit = net profit

pre-tax profit x (100%)
-/- tax -25% tax (-25%)
=
net profit ……. (75%)
…. and the -25% tax are always 100% together
 + all other expenses (room, overhead etc.)
 - profit others (F&B)
 : number of rooms sold (rooms x days open x occupancy%