The
The change in strategy has meant that other significant changes took place. One of them was to recruit qualified people who had knowledge of the mew target market.Any people employed in an executive post must have a degree in hotel management, this is to become a minimum requirement. A new rooms division manager, a new food & beverage manager and a new head chef have been employed. The hotel has employed you as assistant operations manager. Your main role is to increase the hotel’s profitability.
The new managers report directly to the General Mnager. The General Manager has a marketing background and does not possess professional level accounting expertise.
The General Manager of the hotel has approached you for ad vice. She has compiled a list of performance reports from the two major departments of the hotel, i.e. Room Division and Food & Beverage Division.The summarised versions of the reports are as follows:
Room Division:
The rooms division budgeted to sell 10,800 room nights but the actual room nights sold were 12,240.
Front Office and Housekeeping department
Financial performance reportfor the four months ended 30th september 2010
Actual Budget
Sales revenue 1,179,900 1,080,000
Variable costs
Labour 84,456 75,600
Room amenities 5,216 5,400
Contribution margin 1,090,228 999,000
Fixed costs 241,000 235,000
Operating profit 849,228 764,000
Other Information
The budgeted wage was ￡14 per hour and each room was budgeted to take half an hour to clean (per room sold).
The actual average wage rate paid was ￡15 per hour and 5,630.4 hours were worked cleaning rooms in the four months ended 30th september 2010.
Room amenties were provideed in guest bathrooms in small plastic packs. The packs contained shampoo, conditioner and bar of soap. According to calculations made by the hotel managers each amenity pack should cost ￡o.50. The assumption was one amenity pack per room night sold.
However, the rate of one pack per room night was exceeded as 13,040 amenity packs were issued from stock during the four months. These amenity packs actually cost ￡ 0.40 each.
Food &Beverage division:
The hotel’s La Piazza restaurant serves breakfasts, lunches and dinner. In June it was budgeted that 500 covers would be served. The restaurant manager budgeted that June’s fixed costs would be ￡ 800.
The budgeted revenue and variable cost per cover are below.
La Piazza Restaurant-Budgeted
June budgeted volume of covers, average revenue and variable cost per cover served.
Covers sold Selling price per cover Variable cost per cover
Breakfasts 100 ￡ 7 ￡ 2.5
Lunch 150 ￡ 14 ￡ 5.0
Dinner 250 ￡ 25 ￡ 10.0
La Piazza Restaurant – Actual
Actual results achieved in June are detailed below. Fixed costs actually incurred in June were ￡ 740.
June actual volume of covers served, average revenue and variable cost per cover served.
Covers sold Selling price per cover Variable cost per cover
Breakfasts 110 ￡ 6.9 ￡ 2.20
Lunch 100 ￡ 17.0 ￡ 5.40
Dinner 300 ￡ 22.0 ￡ 9.50
The cafe
The hotel operates The cafe, which is a quick service restaurant. Its targetmarket is the people who work in the nearby offices and do not wish to have lunch at the hotel’s reastaurant.
The head chef introduced a new menu and General Manager wants to examine the profitability of the new set menu. The selling price was based on the following predicted costs:
Starter: Soup of the day ￡
100 gr of mushrooms at ￡ 3.00 per kg 0.30
Cream and other ingredients 0.20
Main course: Roast beef ￡
Beef 0.10kg at ￡ 15.00 per kg 1.50
Potatoes 0.2kg at ￡ 0.25 per kg 0.05
Vegetables 0.3kg at ￡ 0.90 per kg 0.27
Other ingredients 0.23
Dessert: Fresh fruit salad ￡
Fresh fruit 0.15kg at ￡ 3.00 per kg 0.45
The selling price was set at ￡ 7.50, which produced an overall GP of 0.6%. During June 2010 the number of set menus sold was 860 instead of the 750 budgeted. This increase was achieved by reducing the selling price to ￡ 7.00. During the same period an analysis of the direct costs incurred showed:
￡
90kg of mushrooms 300
Cream and other ingredients 160
70kg of beef 1,148
180kg of potatoes 40
270kg of vegetables 250
Other ingredients 200
140kg of fresh fruit 450
There was no opening or closing stock at the beginning or end of the month.
Required:
Room Division:
a) Prepare a flexible budget for the hotel for the four months ended 30th september 2010 and record all flexible budget variances.
b) Calculate the room cleaning labour rate and efficiency variances.
c) Calculate the room amenity price and efficiency variances.
d) Calculate the selling price and sales volume variances.
Food & Beverage Division:
La Piazza restaurant:
a) Produce a flexible budget performance table schedule for June that pressents the flexible budget revenue variances and also the flexible budget variable cost variances for each of the three restaurant sittings.
b) Comment on any variances that might need further investigation.
The cafe:
a) Calculate the budgeted profit for the month of June 2010.
b) Calculate the actual profit for the month of June 2010.
c) Prepare a statement that reconciles your answer to (a) and (b) above, showing the variances in as much detail as possible.
d) Comment on the possible causes of the two most important variances.
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