Write a report for the directors evaluating each option.
In your introduction, you must identify the key Management Accounting issue for the business
Then, as part of the Planning process, you must identify the information you will gather/consider about each optionAs part of the Decision Makingprocess, you must explain how you will decide between the two options, weigh the pros and cons of each option, and make a recommendation to the directors.
In the given case the management of a given Hotel is facing some management accounting issues related to the ways in which the capacity of the hotel needs to be utilised in order to obtain optimum results in terms of profits. While evaluation of these options the management will be faced with issues like ways of increasing the contribution and desirably earning more than the break-even point, maintaining the flow of customers in order to retain and increase the business goodwill and footprint and optimum utilisation of resources. The issues are very crucial for the management due to their respective implications on the functioning of the hotel and subsequently on the profitability of the hotel (Gitman et al. 2015). The management will need to find a proper method of allocating the fixed costs a
nd charging the variable cost as per their direct implication on the service provided. A proper method must be formulated in order to derive the right pricing for the services provided during the winter seasons. Due to the low demand the management cannot charge high prices from its main customers that is families that come on vacation and in order to provide services to corporate houses it needs to make certain changes in the hotel during specific period of the day in order to hire the rooms to the corporate entities (Burns and Walker 2015). The management is also faced with the issue of maintaining its image as a family centric hotel as its main customers belong to the category of families coming on vacation. In addition to this the company will have to primarily carry out a cost benefit analysis.
In order to make an informed choice the management must gather data relating to both the options available. For the offer of discounted price it needs to ascertain the exact footprint during winter and the increment that can be obtained by reducing the price (Sofian et al. 2017). Then after getting the data it will have to prepare a budget statement and obtain an estimate of profit during the winter if any. It must also factor in the point that it wants to become a hotel of choice for family holidaymakers. The point that it will be using its capacity towards giving service to the business community is not in line with its vision.
In respect of the option of letting out the hotel to business communities for the purpose of residential conferences it needs to conduct surveys and find out the reasonable number of conferences that are going to take place in the winter seasons and whether or not the corporate houses will find the hotel a suitable location for conducting the same (Tappura et al. 2015). It must also find out the expenditure it has to incur in terms of introduction of new services in order to provide the business communities value for money. This is required in order to ascertain the viability of the options in terms of reality or their practical implication. The management will even need to train its employees in certain skills so as to provide assistance and better service to the business community in respect of conducting their meetings (Pavlatos and Kostakis 2015).
For the purpose of decision making the analysis of both the plans on respect of their return provided to the entity in terms of profit as well as in terms of the establishment of the brand name of the hotel must be considered. It must be noted that more than the profit in the short run the hotel should look implementing its mission and vision in the long run (Finkler et al. 2016). After conducting a cost benefit analysis if the managements finds that the difference between the profits earned by giving out the hotel rooms to customers at a discounted price and to the business community for conducting business conferences is not very huge it must go for the option of providing the rooms to the customers at a discounted price during the months of winter. This is because of the fact that the hotel aspires to become the hotel of choice for family holidaymakers. The hotel will also have to take into consideration the changes to make in respect of changing the environment form a family hotel to a corporate set up (Nimtrakoon and Tayles 2015). The management’s belief that by changing a room in a particular manner it will be able to attract the business community is faulty as different types of customers have different expectations from a hotel depending upon their needs. The management may have to undertake further changes like installing new electric points to install projector and other electronic equipment etc. The decision should be based upon both cost benefit analysis and mission and vision of the hotel for itself in the long run (Novas et al. 2017).
Controlling & Recommendation:
There are many factors regarding which the management will have to gather information before implementing the option of providing the hotel rooms at a discounted price in the winter season. It also must come up with a price that is able to receive the fixed cost along with some profit. In order to measure the performance achieved by implementation of the option the management needs to make an estimated budgeted statement prior to the implementation and after the actual results are obtained, it can easily identify the deviations if any that is taking place (Gray 2014). The management must ensure that it takes timely, effective and efficient measures in order to ascertain the success of the implementation of the option. The discount that needs to be provided must be computed scientifically by measuring the increase in customer footprint thereby in the revenue and the loss of return due to the discount given. With the increased footprint in the winter season the variable cost of the company will also increase and hence, it must try to factor in that too while coming up with a discounted price. At all times it must keep a check on its variable cost in order to optimise the benefits of the option. This will ensure effective and efficient implementation of the options available to the management.
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Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now.
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Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.
Gray, S.J. ed., 2014. International accounting and transnational decisions. Butterworth-Heinemann.
Nimtrakoon, S. and Tayles, M., 2015. Explaining management accounting practices and strategy in Thailand: A selection approach using cluster analysis. Journal of Accounting in Emerging Economies, 5(3), pp.269-298.
Novas, J.C., Alves, M.D.C.G. and Sousa, A., 2017. The role of management accounting systems in the development of intellectual capital. Journal of Intellectual Capital, 18(2), pp.286-315.
Pavlatos, O. and Kostakis, H., 2015. Management accounting practices before and during economic crisis: Evidence from Greece. Advances in accounting, 31(1), pp.150-164.
Sofian, S., Tayles, M. and Pike, R., 2017. The implications of intellectual capital on performance measurement and corporate performance. Jurnal kemanusiaan, 4(2).
Tappura, S., Sievänen, M., Heikkilä, J., Jussila, A. and Nenonen, N., 2015. A management accounting perspective on safety. Safety science, 71, pp.151-159.
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