MANAGERIAL ACCOUNTING
Income statement (profit-loss account): Period, per month/year, overview of revenues(=sales) and
expenses(=costs).
Balance: is an overview, you can make this on any moment.
Sales: Rooms and F&B
Costs: Direct, directly related to my business(labour, ingredients). Indirect, not directly (depreciation,
rent). Variable(depends on sale, ingredient costs) and Fixed (rent, labour stays the same).
Types of profit:
› Gross profit = revenues – cost of goods sold
› Departmental profit = revenues – direct operating expenses
› Gross operating profit = departmental profit – overhead expenses
› Net profit = gross operating profit – fixed charges
How to calculate the different types of profit?
› Sales – which (collection of) costs
Labour: Salaries & wages
P/L account = Profit/Loss account
Net income = Net profit after tax
Budgeting and variance analysis
› Budget = forecast sales, costs and profit
› Variance analysis
› Variance = difference
› Comparing budgeted with actual sales or costs
› Sales: price & quantity variance
› Cost: cost & quantity variance
Reasons that the actual sales are lower than the forecasted sales:
› Prices may have been to high -> price variance
› Number of rooms wasn’t right
› It can also be both at the same time
Reasons that the actual sales are higher than the forecasted sales:
› Didn’t sell every room, so less rooms to clean
› I pay employees less
Actual sales higher than forecasted -> favourable
Actual sales lower than forecasted -> unfavourable
Quantity variance: (B – N) * Sp
Price variance: (Sp – Np) * N
B= begrote hoeveelheid, N= echte hoeveelheid, Sp= standaardprijs, Np= echte prijs
Approaches to pricing
- Rule of thumb method: is a method in which the prices are set at a certain rate based on the
initial costs. ( for example, prices are set at 60% of the cost of goods sold)
- Intuitive method: Prices are simply established based on intuition. No research about costs,
profits, competition and the market as a whole would have been carried out. Prices are set in
the hope that they are correct and the guests will accept them.
- Trial and error method: prices are tentatively set to evaluate the effect it would have on sales
and net incomes. The prices is finally set at levels where the net incomes are apparently
maximized.
, - Price cutting method: in competitive situations, prices are set at levels below those of the
competition. This is an informal method en generally risky because in the case the
competition reacts by similar reductions in price, this might lead to a price war.
- High price method: similarly in competitive situations prices might be set higher than the
competition due to product differentiation. Also informal, it is equally risky in the sense that if
the guest cannot easily make the price-quality relationship, they might go somewhere else.
- Competitive method: prices are set at the same level as those of the competition. However,
some non-price factors such as location and atmosphere can lead to differentiation. In
situations where there is a dominant operator in the market who normally sets the price
trend, this is called, “follow- the- leader” method.
- Mark up method: specific to restaurants the mark-up is the difference between the costs of
the products and the selling price. The mark-up generally includes the related costs such as,
labour, utilities, supplies and the expected profit.
Pricing Rooms
› The rule of a thousand approach
o Step 1: determine the investment
o Step 2: determine which part of the investment is related to rooms
o Step 3: determine the investment per room
o Step 4: divide the investment per room by 1000
› The bottom up approach/Hubbart formula
o Step 1: determine investment in the hotel
o Step 2: determine required annual rate of return on the investment (after tax
income)
o Step 3: estimate overhead expenses
o Step 4: determine the required gross operating income (pre tax income + step 3)
o Step 5: estimate profits from all other sources (departments)
o Step 6: determine profit needed from room sales (step 4 – step 5)
o Step 7: estimate rooms department’s expenses
o Step 8: determine how much room sales the hotel has to generate (step 6 + step 7)
o Step 9: estimate the number of rooms that will be sold based on the forecasted
occupancy rate
o Step 10: calculate the average room rate by dividing step 8 by step 9
› Relative room size approach
o Step 1: assess the surface area of the rooms sold daily
o Step 2: determine the average revenue required per day
o Step 3: determine the average rate to charge each square meter of room space
o Step 4: determine the specific rates to charge each room type
Price of rooms depends on:
› Luxury
› Costs
› Service
› Size
› Number of guests
› Demand & Supply (revenue/yield management)
› Location
› Facilities
› Competition
› Season
Income statement (profit-loss account): Period, per month/year, overview of revenues(=sales) and
expenses(=costs).
Balance: is an overview, you can make this on any moment.
Sales: Rooms and F&B
Costs: Direct, directly related to my business(labour, ingredients). Indirect, not directly (depreciation,
rent). Variable(depends on sale, ingredient costs) and Fixed (rent, labour stays the same).
Types of profit:
› Gross profit = revenues – cost of goods sold
› Departmental profit = revenues – direct operating expenses
› Gross operating profit = departmental profit – overhead expenses
› Net profit = gross operating profit – fixed charges
How to calculate the different types of profit?
› Sales – which (collection of) costs
Labour: Salaries & wages
P/L account = Profit/Loss account
Net income = Net profit after tax
Budgeting and variance analysis
› Budget = forecast sales, costs and profit
› Variance analysis
› Variance = difference
› Comparing budgeted with actual sales or costs
› Sales: price & quantity variance
› Cost: cost & quantity variance
Reasons that the actual sales are lower than the forecasted sales:
› Prices may have been to high -> price variance
› Number of rooms wasn’t right
› It can also be both at the same time
Reasons that the actual sales are higher than the forecasted sales:
› Didn’t sell every room, so less rooms to clean
› I pay employees less
Actual sales higher than forecasted -> favourable
Actual sales lower than forecasted -> unfavourable
Quantity variance: (B – N) * Sp
Price variance: (Sp – Np) * N
B= begrote hoeveelheid, N= echte hoeveelheid, Sp= standaardprijs, Np= echte prijs
Approaches to pricing
- Rule of thumb method: is a method in which the prices are set at a certain rate based on the
initial costs. ( for example, prices are set at 60% of the cost of goods sold)
- Intuitive method: Prices are simply established based on intuition. No research about costs,
profits, competition and the market as a whole would have been carried out. Prices are set in
the hope that they are correct and the guests will accept them.
- Trial and error method: prices are tentatively set to evaluate the effect it would have on sales
and net incomes. The prices is finally set at levels where the net incomes are apparently
maximized.
, - Price cutting method: in competitive situations, prices are set at levels below those of the
competition. This is an informal method en generally risky because in the case the
competition reacts by similar reductions in price, this might lead to a price war.
- High price method: similarly in competitive situations prices might be set higher than the
competition due to product differentiation. Also informal, it is equally risky in the sense that if
the guest cannot easily make the price-quality relationship, they might go somewhere else.
- Competitive method: prices are set at the same level as those of the competition. However,
some non-price factors such as location and atmosphere can lead to differentiation. In
situations where there is a dominant operator in the market who normally sets the price
trend, this is called, “follow- the- leader” method.
- Mark up method: specific to restaurants the mark-up is the difference between the costs of
the products and the selling price. The mark-up generally includes the related costs such as,
labour, utilities, supplies and the expected profit.
Pricing Rooms
› The rule of a thousand approach
o Step 1: determine the investment
o Step 2: determine which part of the investment is related to rooms
o Step 3: determine the investment per room
o Step 4: divide the investment per room by 1000
› The bottom up approach/Hubbart formula
o Step 1: determine investment in the hotel
o Step 2: determine required annual rate of return on the investment (after tax
income)
o Step 3: estimate overhead expenses
o Step 4: determine the required gross operating income (pre tax income + step 3)
o Step 5: estimate profits from all other sources (departments)
o Step 6: determine profit needed from room sales (step 4 – step 5)
o Step 7: estimate rooms department’s expenses
o Step 8: determine how much room sales the hotel has to generate (step 6 + step 7)
o Step 9: estimate the number of rooms that will be sold based on the forecasted
occupancy rate
o Step 10: calculate the average room rate by dividing step 8 by step 9
› Relative room size approach
o Step 1: assess the surface area of the rooms sold daily
o Step 2: determine the average revenue required per day
o Step 3: determine the average rate to charge each square meter of room space
o Step 4: determine the specific rates to charge each room type
Price of rooms depends on:
› Luxury
› Costs
› Service
› Size
› Number of guests
› Demand & Supply (revenue/yield management)
› Location
› Facilities
› Competition
› Season
