SOLUTIONS MANUAL for Accounting Essentials for Hospitality Managers 4th Edition by Guilding Chris and Mingjie Kate. ISBN 9781000539929, ISBN: 9781032024325 TABLE OF CONTENTS 1. Introduction: Hospit ality Decision Makers’ Use of Accounting 2. Analysing Transactions and Preparing Year End Financial...
, 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
1
, 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.
• 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.
2
, 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.
Problem 1.5: Solution
Fixed costs are costs that do not vary as a function of sales activity levels. Hotels involve
considerable investment in fixed assets such as buildings on prime land as well as extensive
furnishings, fittings and equipment. This investment generates high rent and depreciation
costs, which together with significant salary costs, result in a high fixed cost structure for
hotels.
Problem 1.6: Solution
a) Major hotel activities include room housekeeping, restaurant food preparation and
service as well as bar service. Despite the advent of the machine and computer age, the
physical aspect of all of these activities has changed little over the last fifty years, as they
continue to have a high labour component.
b) High labour intensive activities in hotels signifies the importance of performance
measures that focus on labour productivity. Such performance indices include restaurant
covers per employee hour worked and restaurant sales per employee hour worked.
Monitoring differences between actual labour cost and budgeted labour cost represents
another dimension of labour cost management. An appropriate analysis of the difference
between budgeted and actual labour cost enables a distinction to be drawn between labour
rate and labour efficiency factors.
Problem 1.7: Solution
Financial accounting concerns the preparation of financial reports for external users such
as shareholders, banks and government authorities. In order for these financial reports to be
meaningful, it is important that they are produced in a standardised way and are seen to be
reliable. Management accounting concerns the provision of financial information to
internal management. This information is designed to help managers in their decision
making and control of businesses. Financial information sought by hotel managers includes
determining the cost of providing a meal to inform the menu pricing decision, determining
how many delegates need to attend a conference in order to achieve break even, and
determining what level of profit is made by each selling unit of a hotel to inform any
rationalisation decision to drop a unit. The provision of all these types of financial
information falls within the scope of management accounting.
3
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller AcademiContent. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $32.08. You're not tied to anything after your purchase.
