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Accounting Financial Analysis Report Management

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Identification of areas of significant overspend

The reported revenue of the Jasmine Hotel in Sydney, a part of Jasmine Hotel Group is $1,003,800 for the period January to June 2016. However, the hotel incurred gross profit $710,200 whereas the departmental profit of $174,682 yet it has been observed that the hotel overspent some of the areas that led the group incurring profits at a decreasing percentage from that of target benchmark.

Salary and wages

The first area of significant overspend by the hotel is expenses on salaries and wages amounted to $325,678, which

is 32.4% of total sales revenue while the target benchmark percentage is 30.0%. Hence, the hotel had overspent the expenses on executives and workers with a difference of 8.1% considering the benchmark rate as a base rate. In the current economy, the unemployment rates are high yet the hotel industries facing the highest labor turnover costs. According the research in the recent years it has been identified that the hotel industries are majorly attributing their cost to labor turnover that provides substantial impact on the operating costs of the hotel as well as on the profitability.

Labor turnover has wide cost bifurcation with respect to tangible and intangible costs that increases the human capital unnecessarily as a component of critical importance to the performance of the hotel industry. On facing the constant pressure to increase profit and attract investments in the hotel industries, the management is taking steps to employ more employees with regard to increase business operations and hotel services. Hence, it is essential for the Jasmine Hotel to consider the expenses on salaries and wages to maintain the benchmark profitability.



Another area of significant overspend with respect to expenses is laundry expenses. In the statement of profit and loss and the statement of vertical analysis, it has been noted that the departmental expense on laundry for the period January to June 2016 amounted to $21,200. The cost of laundry was determined at 2.1% of the total sales revenue while the target benchmark was 1.8%. As a result, the hotel experienced the increase of cost at 17.3% considering the base rate as target benchmark. Hence, the management is required to examine the expenses on laundry in critical manner.

There may be number of possible causes that results in inflation of laundry costs for the hotel and the management is responsible to evaluate these reasons. One of the reasons might be in-house laundry service by the Jasmine Hotel instead of outsourcing the same. In case of in-house laundry service, the hotel have to invest in the expensive laundry equipments, processing cost, raw materials like detergents, excess water and other relevant materials, extra laundry staffs and maintenance charges. It not only increases the laundry cost but the labor expenses as well that eventually inflate the departmental expenses and decrease the profitability percentage. Another reason of high laundry cost due to lack of interest for being in the business of laundry and maintaining the level of high status and quality for in-house hotel services.


It is another significant area of overspend expenses for the Jasmine Hotel department. The uniform expense for the period January to June 2016 was $14,600, which was 1.5% of the total sales revenue. However, the target benchmark percentage for the cost incurred in uniforms of the staff members was 1.1% and the company faced the increase in percentage of 32.2% considering the benchmark percentage as a base rate. Although it is important to consider the uniform of the hotel staffs and members to maintain the standard and reputation, yet it is not feasible to overspend in the cost of uniform. The possible reason of the excessive expenditure might be over using of uniforms by certain staffs. It is possible that they use the pair of uniforms more than they are allotted. Another reason is over employment of staffs and workers, as they will have to be provided with uniforms and required accessories. The cost of uniforms increases if the Jasmine Hotel uses expensive material and fabric for the pair of uniforms that staff members use. Using the high quality fabrics as well as high laundry service eventually increases the cost of uniform as well as the departmental expense of the hotel.


Review of actual cause of overspend in salary and wages

The Hotel Jasmine experienced high departmental expenditure in the area of salary and wages, which the management should examine and control to achieve the target benchmark. There could be number of reasons that influence the high costs in labor turnover and it is important to evaluate such reasons. It is important to review the services that the hotel aims to provide and actually providing. The memorandum of the hotel is to be reviewed in this regard. If the services like housekeeping, security and call support are outsourced then the cost of salary and wages to additional staffs and employees can be saved.

Additionally, the register of members is to be verified with the actual number of appointed employees to examine if there is any overcharge in payment of salary. The scale of payment to different class and level of employees should be examined with respect to the authenticated payments as per the hotel industry norms. Payment to employees in lieu of incentives, bonus or any other reward should also be checked to ascertain the fairness in the recognized salary and wages expenses.

The management is required to analyze the expenditure on salaries and wages to control the total cost of department. With the increase in labor turnover rates in hotel industries to maintain the standards and quality, the management often experience the decrease in profit percentage. Further, it has been noticed that the hotel Jasmine has taken number of extra services that can be outsourced and accordingly increased the employment of workers. This step is one of the major reasons for overspending the expenses on salaries and wages more than the target benchmark set by the hotel management.

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