Market Study On Cost Drivers And Cost Pool: Business Process System Assessment Answer

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Question :

Bachelor of Tourism and Hospitality Management

BTHM

2019-SEM1-THH3113 Cost and Performance Management for Tourism and Hospitality

Assessment Task 3: Individual Assignment

Assessment of the assignment is based on the adequacy and accuracy of the submitted assignment.

For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised.

Students must:

fully reference the source(s) of all material, even if you have re- expressed the ideas, facts or descriptions;

acknowledge all direct quotations; and

Not submit work that has been researched and written by another person.

Your work will be assessed in terms of the following criteria:

  1. Effectiveness of communication – i.e. readability, legibility, neatness, completeness and presentation
  2. Demonstrated understanding of the subject matter covered - This will be evidenced by your ability of submitted answers.

Certain aspects of these questions may require some assumptions to be made. Therefore, different answers are very acceptable. For ease of marking please specify these if you think it clarifies your decisions and responses.

Your assignment must be submitted into the Turnitin drop box on LMS.

THH3113 COST AND PERFORMANCE MANAGEMENT FOR TOURISM AND HOSPITALITY (2019 Sem 1)

Case study:

The Elephant Hotel was first opened as the Prince Consort Hotel in 1888. The Hotel was refurbished in 2013 and is comprised of a large public bar with full facilities, dining room, beer garden, bottle shop - the Valley Wine Shop, located on the corner of Brunswick & Wickham streets. Of Queensland Australia.

The owners of The Elephant Hotel BOB & BIB have successfully gained their new trading license for their new hotel in Fortitude Valley Queensland and they have a lot of competitors to compete with. BOB & BIB are very concerned about their business that they might succeed only if they cut done on their costs. They want to compare their budgeted expenses and income statement and see how they have performed in the basis of cost management when compared to previous year and current year.

They want to be proactive thus forecast and decide for any extra costs that they might incur in running their new branch. As their current revenue manager for their Old branch you are approached to evaluate factors affecting value perceptions in food services.

BOB & BIB are sure that you can help them to point out the cost drivers and evaluate management cost drivers that measure performance of the cost control

The extract of The Elephant Hotel is below which you should use for your analysis.

Income & Expenses Statement for The Elephant Hotel for the year ended 30th June 2018


ACTUAL
INCOME & EXPENSES
BUDGETED
INCOME & EXPENSES

2017-20182017-2018
INCOME

RESTAURANT Sales$445,000.00$425,000.00
Sale From Bar$245,000.00$250,000.00
TOTAL SALE$690,000.00$675,000.00
Expenses
Advertising$4,953.13$3,937.50
Bank charges$810.00$1,080.00
Casual employee wages$180,625.00$187,500.00
Cleaning & cleaning products$1,215.00$1,620.00
Credit card commission$16,192.50$13,590.00
Electricity/Gas$37,125.00$37,000.00
FOOD DELIVERY Vehicle service
costs
$3,937.50$4,050.00
kitchen utensils hire$1,350.00$1,250.00
Netflix subscription$1,350.00$1,350.00
Permanent full time employees
wages
$315,000.00$315,000.00
property insurance$1,181.25$1,575.00
Public liability insurance$945.00$1,260.00
Repair & maintenance$12,531.50$9,375.00
Superannuation for employees$47,084.38$47,737.50
Waste removal$1,822.50$2,430.00
Water charges$9,450.00$10,600.00
Website hosting expenses$2,995.31$3,993.75
Total Expenses$638,568.06$643,348.75
Month Net Profit / (Loss)$51,431.94$31,651.25


NOTES FOR THE NEW SHOP RUNNING EXPENSES

  1. The bank charges depend on the number of transactions that takes place in the restaurants
  2. Property Insurances change according to the area
  3. Kitchen utensils are hired as per the catering orders they receive. All cooking is done in the current shop (management doesn’t want to plan catering in the new branch. If they are getting an order, they have decided to make it all in the current hotel and deliver)
  4. There was an unexpected equipment failure in the hotel during in the

months of December that has increased the repair expenses (this was mainly because of poor record keeping for the equipment’s maintenance)

1. The management has implemented some strict waste reduction measure as a result the waste removal charges have decreased

(YOU CAN ALSO DOWNLOAD THIS EXCEL FILE FORM THE LMS)

Analysis and Report (30 marks. Approximately 1250 – 1500 words)

2. Cost Control: (5 Marks)

Identify and evaluate cost control areas and recommend how they can control them in future by better cost management

3. PERFORMANCE ANALYSIS (VARIANCE): (10 Marks)

Perform a variance analysis on the following report and discuss about the variances in performance when compared to their budget.

4. Cost and Revenue Analysis: (10 Marks)

Recommend on how Bob and BiB should handle his sales Show More

Answer :

Costing method 

1. Introduction 

With the changes in economic condition, each and every organization needs to strengthen the business position by focusing the allocation of the costing in the different process and reducing the overall business costing.  It is analysed that a market study should be conducted to identify the cost drivers and cost pool associated with the business process system. The cost control analysis and allocation method helps in understanding the key revenue drivers of business which need to be kept at utmost priority. The cost and revenue drivers helps in allocation of the business costing in the different department to identify the true costing value of the particular process. 

2. Identify and evaluate cost control areas and recommend how they can control them in future by better cost management.

The cost control areas identified for business are as follows:

  • Materials: the cost related to material is crucial for The Elephant Hotel. The easte reduction measures which have led in reduction of costs can further be dragged strong to reduce the cost on waste more. Also the areas where material is being used inefficiently have to be identified. Cost control is also required in the area of poor handling of material leading to the wastage generation (Nowak, 2016).
  • Sales costs: the costs incurred on generation of sales are an important area for cost control. The company has incurred extra advertising efforts leading to rise in actual costs on advertising than the budgeted (Chen, Chen, Zhang, & Xu, 2018). 
  • Repair and maintenance: improper record of the business equipments is maintained by The Elephant Hotel. This has led the organisation to have insufficient idea about the condition of the equipment and the handling and maintenance required for them from time to time to prevent the excessive repair and maintenance costs. This area demands controlling of the costs (Patiar, 2016). 

The recommendations desired for the control of costs related to these cost control areas are as follows:

  • A market study should be conducted to identify the different suppliers of the hotel supplies to entertain purchases at least costs. The production process is also required to be evaluated to understand the loopholes leading to generation of high wastage.
  • A cost benefit analysis should be undertaken before finalising the sales expenditures. Only those advertising and marketing expenses must be entertained that actually results in increment in sales.
  • Records related to the fixed assets must be maintained since the day acquisition is made. records must be updated regularly to incorporate the changes in them relating to impairment, amortisation and depreciation. Also regular physical verification of the assets must be undertaken for identification of their working and economic condition.

3. Perform a variance analysis on the following report and discuss about the variances in performance when compared to their budget.

Income & Expenses Statement for The Elephant Hotel for the year ended 30th June 2018
PARTICULARSACTUAL INCOME & EXPENSESBUDGETED INCOME & EXPENSESVARIANCE IN THE ACTUAL AND BUDGETEDPERCENTAGE CHANGE 
 2017-20182017-20182017-20182017-2018 
INCOME      
RESTAURANT Sales$445,000.00 $425,000.00 $20,000.00 4.71%Favourable
Sale From Bar$245,000.00 $250,000.00 ($5,000.00)-2.00%Unfavourable
TOTAL SALE $690,000.00 $675,000.00 $15,000.00 2.22%Favourable
Expenses     
Advertising$4,953.13 $3,937.50 $1,015.63 25.79%Unfavourable
Bank charges$810.00 $1,080.00 ($270.00)-25.00%Favourable
Casual employee wages$180,625.00 $187,500.00 ($6,875.00)-3.67%Favourable
Cleaning & cleaning products$1,215.00 $1,620.00 ($405.00)-25.00%Favourable
Credit card commission$16,192.50 $13,590.00 $2,602.50 19.15%Unfavourable
Electricity/Gas$37,125.00 $37,000.00 $125.00 0.34%Unfavourable
FOOD DELIVERY Vehicle service costs$3,937.50 $4,050.00 ($112.50)-2.78%Favourable
kitchen utensils hire$1,350.00 $1,250.00 $100.00 8.00%Unfavourable
Netflix subscription$1,350.00 $1,350.00 $0.00 0.00%Favourable
Permanent full time  employees wages$315,000.00 $315,000.00 $0.00 0.00%Favourable
property insurance$1,181.25 $1,575.00 ($393.75)-25.00%Favourable
Public liability insurance$945.00 $1,260.00 ($315.00)-25.00%Favourable
Repair & maintenance$12,531.50 $9,375.00 $3,156.50 33.67%Unfavourable
Superannuation for employees$47,084.38 $47,737.50 ($653.12)-1.37%Favourable
Waste removal$1,822.50 $2,430.00 ($607.50)-25.00%Favourable
Water charges$9,450.00 $10,600.00 ($1,150.00)-10.85%Favourable
Website hosting expenses$2,995.31 $3,993.75 ($998.44)-25.00%Favourable
Total Expenses$638,568.06 $643,348.75 ($4,780.69)-0.74%Favourable
Month Net Profit / (Loss)$51,431.94 $31,651.25 $19,780.69 62.50%favourable


The variance existent between the performance of business on budgeted and actual terms for 2017-18 financial years is depicted by the above the table. The actual revenues for business have rose by 2.22% against the actual performance, while the total expenses fell by 0.74%. the both directions of the performance parameters are favourable for business. This small change in the revenues and expenditures has led to a favourable change in the net profits drastically. The budgeted profits rose by almost 63%. 

The cost control areas identified earlier are also observant in the variance analysis. the rise in the repair and maintenance expense from the budgeted reserve is around 34%. The advertising expense is high by 26% approximately from the budgeted ground. The waste removal strategies have however led to reduction in the waste removal expenses by 11% approximately (Raguseo, Neirotti, & Paolucci, 2017). 

The expense upon the property insurance has dropped by 25% due to change in the area of the company’s operations. The bank charges also fell by 25% due to the lowered number of banking transactions of business. The changes in rest other expenses is also visible form the variance analysis presented.

3. Recommend on how Bob and BiB should handle his sales without compromising on cost in the future.

The sales can be handled well by Bob and BiB without increasing costs by handling the sales cost in an efficient manner. A proper check of the areas that lead to cutting the sales revenue by hurting the customer desires must be made. This analysis shall help in understanding the key revenue drivers of business which need to be kept at utmost priority. A target customer market which is already being approach and is expected to be approached must be first defined. This key market area shall help in determination of the product changes required and the policies which business need to undertake to bring an improvement in the business handling (Singh, Marinova, Singh, & Evans, 2018). 

The profit margin for business and the expected sales can only be determined with utmost perfection when an idea about the product reach is close to certain. In accordance with the target market and the reach of market, the sales resources are to be allocated to get the maximum benefit out of the least costs. Handling of sales is also dependent largely upon the kind of sales channel advertisement methodology used in the business by The Elephant Hotel. Based upon the target market preferences and access an appropriate method to promote the company’s reach to its customers must be decided and implemented (Baguley, & Andrews, 2016). 

Moreover, the most important aspect recommended to handle the sales is generation of a proper feedback system in the hotel to know the consumer grievances and deal with them appropriately. The consumer complaints when dealt appropriately results in consumer loyalty and repetitive service use by them. 

Conclusion 

After assessing all the details, it could be inferred that the profit margin for business and the expected sales can only be determined by using the cost drivers and set cost pool of the business. It is analysed that if company wants to sustain in market then it will have to focus on increasing the overall business outcomes and turnover. However, sales should be increased to the point where company has least total cost. Nonetheless, variance analysis is used to identify the true difference between the actual and expected results. The variance existent between the performance of business on budgeted and actual term throughout the time However, the comparison is made in the same time line with the set budget.