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Part A: Budgeted Room Revenue Calculation for Hotel Industry

Part a.
Question 9.45[ Birt, Jacqueline, Keryn Chalmers, Suzanne Maloney, Albie Brooks, Judy Oliver. Accounting: Business reporting for decision making including iStudy, 5th Edition. John Wiley & Sons Australia, 2014]
The Dorquay Hotel has twenty rooms available for rent. During the month of December its average room rate is expected to be $180 and its room occupancy 90 per cent. Due to the holiday season in January, the room rate is to be increased by 10 per cent, and the occupancy is expected to be 95 per cent. In February, no further room rate increase is planned and occupancy is expected to be 85 per cent.
Required (group)
Calculate the budgeted room revenue for each of the three months .
Required (your individual response)
Discuss how the management of the Dorquay Hotel could have estimated the occupancy rate.
Part b.
Question 2.572
Erle Smith is the financial controller with Practical Solutions Ltd, an entity that sells software products to accounting firms and small businesses. Mr Smith is analysing a number of software packages that focus on budgeting. He needs to select a package he can recommend to his clients. Each software vendor is keen to have their software selected as it will result in a significant increase in sales for their company.
Anitah Loh is a salesperson for software company Dogto Ltd. She has asked Mr Smith to go to Los Angeles to analyse her company’s software package properly, and the programming experts there can give him a thorough demonstration. Ms Loh also suggested Mr Smith take his family, so he feels relaxed in a foreign country and can undertake his analysis without worrying about being away from his family. Dogto Ltd would pick up the expenses for the trip.
 Required (your individual response)
1.Do you think Mr Smith should take the trip? Outline any ethical concerns involved.
2.What would be the advantages and disadvantages to Practical Solutions Ltd of having an employee code of conduct? What measures might be included in such a code of conduct?

Part c.
Question 10.32[ Birt, Jacqueline, Keryn Chalmers, Suzanne Maloney, Albie Brooks, Judy Oliver. Accounting: Business reporting for decision making including iStudy, 5th Edition. John Wiley & Sons Australia, 2014]
 Chloe Enterprises operates a single-product entity. Data relating to the product for 2015 were as follows.    

Annual volume  35 000 units
Selling price per unit    $ 60
Variable manufacturing cost per unit  $28
Annual fixed manufacturing costs $ 120 000
Variable marketing and distribution costs per unit  $ 12
Annual fixed non-manufacturing costs  $ 370 000

Required (group)
a. Calculate the break-even in both dollars and units for 2015.
b. Calculate the margin of safety in both units and sales dollars.
c. Calculate the profit achieved in 2015 given the annual volume of 32 000 units..
d. Changes in marketing strategy are planned for 2016. This would increase variable marketing and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000 per year.
Calculate the units that would need to be sold in 2016 to achieve the same profit as in 2015.

Required (your individual response)
a. Would you recommend the change proposed in d. above? Explain

Part A: Budgeted Room Revenue Calculation for Hotel Industry

Question 9.45 on the Dorquary Hotel

Computation of budgeted room revenue for each of the three months

Budget- It is prepared to calculate the revenue and budget of the hotel for the three month. This three month budget has been prepared to identify the total revenue and expenses incurred by Dorquary Hotel for its business functioning.

These are the details of the rooms and occupancy which are given in below list.

Rooms Available

20

Rooms rate

180

Rooms occupancy

90%

In Jan,

Rooms rate

180+10%

Rooms occupancy

95%

In Feb,

Rooms rate

180+10%

Rooms occupancy

85%

These all the information has been given in the question and room occupancy rate has been computed on the basis of same.

Computation of budgeted room revenue

Statement of budgeted room revenue

Dec

Jan

Feb

Rooms available

20

20

20

Rooms occupancy

90%

95%

85%

Total used rooms (Rooms available * rooms occupancy)

18

19

17

Room rate

180

198

198

Room revenue (total used room * rooms rate)

3240

3762

3366

It is evaluated that occupancy rate of the Dorquary Hotel is determined on the basis of season and other external factors of the business.  Room revenue is increased with the increased rate of occupancy. It is evaluated that in the peak season such as December and Jan revenue of the rooms will be increased. The occupancy rate is increased in December and Jan due to high demand of the clients in market. Ideally, December is the peak time when people like to enjoy their life by taking offs (Ekren, Ekren & Ozerdem, 2009).
There are other factors which will affect the occupancy rate of Dorquary Hotel

  • Particular season of the tourism
  • Newly adopted systems and core competency of hotel to attract more clients on domestic and international level.
  • Implementing new rules and new alliance to attract more clients
  • Conducting events and new clients oriented program
  • Cost and hotel booking rate or price
  • Brand image and services offered by Dorquary Hotel
  • Strategic alliance and integration strategies adopted by Dorquary Hotel to attract clients from domestic and international clients.
  • Adopting cyber computing system to allow clients to book rooms and other hospitalities services through online portal

Question 2.572

Answer to question no-1

After evaluating the details and related facts of the case, it is observed that Anitah loh being a salesperson has given a lucrative offer to Mr. Smith to influence his choice of decision to buy software packages for his company. However, offer given by Anitah Loh is to influence Mr. Smith to come down to check the company’s offered software packages (Bardach & Patashnik, 2015).

Ethical concern

In this case, it is observed that Mr. Smith should not take this offer. If he wants to check the software packages offered by Anitah Loh then he should go and check that products on his own. This will keep Mr. Smith at the position where he could independently analysis whether these software packages should be purchased by company for preparing budget or not.

Answer to question no-2

Advantages and disadvantages to Practical Solutions Ltd of having an employee code of conduct (Brigham & Ehrhardt, 2013).

Advantage

Disadvantage

· It will increase the regulatory compliance of the organization.

· It would surely result to keeping high ethical compliance.

· It will help company to adopt standard code of conduct and employees oriented organization culture.

· It will help employees to determine the limit or conditions while performing work in organization.

· If Practical Solutions Ltd has proper code of conduct then it will increased the transparency of business and motivates all the employees to work ethically in determined approach.

· All the regulatory compliance and workmen oriented policies will be kept at the top most priority.

Setting code of conduct will increased the complexity of the business.

It will increase the formal regulatory compliance and cost of the production of company.

Practical Solutions Ltd has to follow set compliance program before implementing any rules and procedure before adapting to newly installed changes in value chain activities.

It will increase the employee turnover and result to increased cost of capital of company.

This will destruct the balance score card and will provide less efficient Key person indicators of company.

  • Employees should strictly follow all the rules and regulations of the code of conduct
  • Possible liberalisation and policies changes clauses should be included in this particular code of conduct.
  • All the code of conduct and policies should increase the overall productivity of organization.
    Part-C

Chloe Enterprises operates a single-product entity and in this part of the paper there are several computations has been done as below (Frias?Aceituno, Rodríguez?Ariza, & Garcia?Sánchez, 2014).

Answer to question-(a)

Computation of the break-even point- This point of the Chloe Enterprises reflects the point at which there will be no loss no profit.

a) Calculation of breakeven point

Per unit

Total

Selling price

 $               60

 $      21,00,000

Less:

Variable cost

 $               40

 $      14,00,000

Contribution (Sales - variable cost)

 $               20

 $        7,00,000

Fixed cost

 $     4,90,000

Break-even point (Fixed cost / contribution)

24500

 $      14,70,000

Breakeven point of the company is 24500 in units and 14, 70,000 rupees in dollars.

Computation of margin of dollar of the company

B) Calculation of Margin of safety

In units

In dollars

Margin of safety (Sales - breakeven point)

10500

 $        6,30,000

Margin of safety

Margin of safety is the point where the company earns the profit. The margin of safety units of the company is 10500 units and in the dollars, it is 6, 30,000 (Vardon, Birt & Ingram, 2017).

Total profit of company- It is the amount of profit which company has earned through its business system. This profit will be changed as changed in the units of the company to 32000 units (Christensen & Kent, 2016).

C) Calculation of total profit

Per unit

Total

Total sales

 $               60

 $      19,20,000

Less: Variable cost

 $               40

 $      12,80,000

Less: Fixed cost

 $        4,90,000

Profit (total sales - fixed cost - variable cost)

 $        1,50,000

The total profit of the company would be $ 2, 10,000.

Marketing strategy- These marketing strategies are implemented with a view to increase the overall profit and turnover of the company.

D) Calculation of sales unit on the basis of desired profit

Per unit

Total

Selling price

 $               60

 $      21,00,000

Less:

Variable cost

 $               44

 $      15,40,000

Contribution (Sales - variable cost)

 $               16

 $        5,60,000

Fixed cost

 $        4,10,000

BEP

24500

1470000

Desired Profit

 $        1,50,000

Sales units to achieve the desired profit (Desired profit / contribution + sales units)

33875

 $      20,32,500

Through this calculations, it has been found that if the company wants to achieve the profit of $ 210000 than the company must sales at least 37625 units to achieve the level (Brigham & Ehrhardt, 2013).

In this case, I would not recommend changes proposed in option-D as increment in the variable cost is seen due to increased level of sales. However, at the same time, it will decrease the overall fixed cost of company. Therefore I would suggest company to accept the proposed changes.

References

Bardach, E., & Patashnik, E. M. (2015). A practical guide for policy analysis: The eightfold path to more effective problem solving. CQ press.

Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice. Cengage Learning.

Christensen, J., & Kent, P. (2016). The decision to outsource risk management services. Accounting & Finance, 56(4), 985-1015

Ekren, O., Ekren, B. Y., & Ozerdem, B. (2009). Break-even analysis and size optimization of a PV/wind hybrid energy conversion system with battery storage–a case study. Applied Energy, 86(7), 1043-1054.

Frias?Aceituno, J. V., Rodríguez?Ariza, L., & Garcia?Sánchez, I. M. (2014). Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment, 23(1), 56-72.

Vardon, M., Birt, J., & Ingram, J. C. (2017). . Business and National Accounting for Natural Capital–Toward Improved Understanding and Alignment. Better Policy through Natural Capital Accounting: Stocktaking and Ways Forward, 215.

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