Write My Assignment FREE

Introduction to Tourism and Hospitality Control

Individual Problem-Solving Assignment

Table of Contents

Task 1: Performance Analysis 3

Task 2: Cost-Volume Profit Analysis (CVP) 7

Income Statement in the Contribution Margin Format 7

Sensitivity Analysis 8

Calculation of Break-even 8

The room sales and revenue necessary to make an after-tax profit of $ 300,000. 10

The impact on the operating profit for a 20% increase and 20% economic contraction in demand under considerations of the degree of operating leverage. 10

Task 3: Pricing Strategies 11

References 15

Appendix 15

Task 1: Performance Analysis

Manager’s perspective: Profitability

• Every company is concern towards its profitability. One of the most rapidly used tools of the financial ratio analysis is profitability ratios that are used to determine the bottom line of the company and its return to the investors. The measurement of the profitability plays an essential role in the life of company manager as well as owner alike. It helps in analyzing the actual growth of the company in an effective and efficient manner. Therefore, in order to analyze the profitability ratio of hotel business, it has been found that the net profit margin of the hotel business in the year 2017 was 10.15% that was increased by 17.40% in the year 2018. Furthermore, the operating profit margin of the hotel business increased from 15.79% to 25.76% from the year 2017 to 2018. It showcase that the overall profitability ratio of the company growing year to year that provide a growth opportunity to the manager of the company to the certain extent. It directly affected over the Return on Assets of the business that was increased by 11.34% to 19.54% from the year 2017 to 2018. It showcase that the company receive better return from investment each year. It represent that the manager of the hotel business is taking effective decision making and also doing good job of generating return from shareholders investment that directly affected over the ROA of the business to the certain extent (J Haron, 2016).

The main reasons for fluctuating in the ROA of the hotel business are explained in the below points:

• The manger has taken effective decision that help in controlling over the expenses of the hotel business to the certain extent.
• The management of the company majorly focuses over enhancing the sales of the company that directly affected over increase in overall ROA of the company to the certain extent.
• The management of the company highly invested over the equipment of the company as well as purchased too much inventory that affected over the ROA of the hotel business to the certain extent (Feldman & Topaloglu, 2017).

Therefore, manager plays a vital role in managing abovementioned activity that affected over the profitability ratio of the company to the certain extent. the profitability ratio of the company showcase that the company is growing every year with the help of effective decision making of the manager which provide an opportunity to the manager of the hotel business to manage and participate in the growth of the company in an effective as well as in an efficient manner (Huang & Ke, 2014).

• Structuring the manager’s bonus around the maximization of the ROA or ROI could have potential negative implication over the revenue and growth of the company to the certain extent. The cost or the expense of the company will get increase with the structuring the bonus of the manager. It would have direct impact over the revenue of the company to the certain extent. Furthermore, increasing the manager’s bonus would around the maximization of the ROA would enhance the expectations towards the performance of the manager that could enhance the level of pressure on the manager which directly affect over the performance of the manager and the revenue of the company to the certain extent. Furthermore, the quality or the productivity would decreased with structuring the bonus for manager due to the reason, if the company pay a manager a percentage of the department’s profit or performance below budget, then they may tempted to reduce the cost in the manner that does not benefited to the company. Therefore, such situation could have negative implication while structuring the bonus for manager on the maximization of ROA of the company (Hague, 2018).

Task 2: Cost-Volume Profit Analysis (CVP)

Income Statement in the Contribution Margin Format

Appendix

Income Statement
for the year ending 31st December 2020 (Contribution margin format)
Sales Revenue	$8,717,660
Variable costs
Variable cost of sales	$1,986,914
Variable operating expenses	$749,000
	$2,735,914
Contribution Margin	$5,981,746
Fixed Costs
Salaries and Wages	$1,920,000
Marketing expenses	$336,000
Maintenance	$225,000
Depreciation for fixtures and fittings	$1,900,000
Other operating expenses & shuttle bus insurance	$50,000
	$4,310,000
Net profit	$1,550,746
Interest Expenses	$540,000
Taxable income	$1,010,746
Tax expense (40%)	$404,298
Net income	$606,448

Contribution Margin Percentage= 68.62%

Sensitivity Analysis

Appendix

Calculation of Break-even

Appendix

It is observed that if there will be no change in the prices and costs, 38,930 Double room nights 3,422 Suites room nights will achieve the breakeven.

1. It is observed that if room sales increases by 10%, the room sales will reduce-

34,802 Double room nights

2,900 Suites room nights

2. It is observed that if food and beverages decreases by 15%, the room sales will reduce-

38,306 Double room nights

3,192 Suites room nights

3. It is observed that if full time salaries and wages decreases by 15%, the room sales will reduce-

36,646 Double room nights

3,054 Suites room nights

The room sales and revenue necessary to make an after-tax profit of $ 300,000.

Required contribution	$5,471,000
Required room nights
Double room	48,067
Suites room	4,006
Required Income	$300,000

The impact on the operating profit

b) To manage large seasonal volatility, hotel can adopt various financial and non-financial measures such as

– Discounts and offers

– Events and activities to indulge the guests and make them busy and attracted towards the hotel

– In order to maintain the guest loyalty, hotel can offer additional customized services to the guests

– Promotional advertisements- offline and online

– WOM (Word of Mouth)

Task 3: Pricing Strategies

“When making pricing decisions, the management can justify setting prices that cover the variable costs only and no other costs.”

The value that business takes for the product or service is one of the most important decision. Too high or low price can limit the growth of any business. At the time of price setting it is important to consider the fact that level achieved should allow the businesses to be profitable in the run. It is important to keep in mind where the product or service stands in comparison with the competition.

The price can be based on the cost and value of the products and services. The suitable option depends upon the type of business, which may affect the customers buying and the nature of the competition in the market.

1. Cost-based pricing

It involves the cost incurred on the production of various products or services and adds an amount that can lead to the profit making. It is commonly expressed as the percentage of the cost. It is more suitable to the businesses that deal with larger versions or that operates in the price dominated market, where there is a huge competition on the prices. But this method ignores the image and market position. The hidden costs are neglected, so the true profit per sale is often lower than realisation.

2. Value- based pricing

This type of pricing focuses on the price that the customers are willing to pay based upon the benefits that the business offers them. It depends upon the strength of the benefits a business can offer to the customers. The benefits that give an advantage, over the competitors, are need to be defined so, a business can charge according to the value given to the customers. This approach can be very profitable as it isolates the potential customers. And can also become as a new competitors in the market.

It is not correct to set the prices very high or low without being different. If the charges will be too low it will throw away the profit. Charging too high will lose the customers, unless they get something which cannot be offered anywhere else.

 (“Price your product or service”, 2020)

In marketing, in order to make profit the expenses should be less than revenue, i.e. expenses<revenues. For the pricing purpose it is ideal to take the average fixed cost with the variable cost in consideration rather than full fixed cost. When a business has expenses=revenues (break-even point) it doesn’t make any profit or loss.

References

Feldman, J., & Topaloglu, H. (2017). Revenue Management Under the Markov Chain Choice Model. Operations Research, 65(5), 1322-1342. doi: 10.1287/opre.2017.1628

Hague, D. (2018) Pricing in business. British: Routledge

Huang, H., & Ke, H. (2014). Pricing decision problem for substitutable products based on uncertainty theory. Journal Of Intelligent Manufacturing, 28(3), 503-514. doi: 10.1007/s10845-014-0991-7

J Haron, A. (2016). Factors Influencing Pricing Decisions. International Journal Of Economics & Management Sciences, 05(01). doi: 10.4172/2162-6359.1000312

Price your product or service. (2020). Retrieved 4 February 2020, from https://www.infoentrepreneurs.org/en/guides/price-your-product-or-service/#3

Appendix

Contribution Margin

Salaries and wages	480,000
Marketing expenses	144,000
Maintenance	25,000
Other operating expenses & shuttle bus insurance	100,000
Total	749,000

CM%= contribution margin/sales revenue * 100

= 5,981,746/8,717,660 * 100 = 68.62%

Sensitivity Analysis

Base case

INCOME STATEMENT FOR THE YEAR ENDING 31^st December 2020

	Amount	Total	%
Sales Revenue
From Room	$7,095,600		81.39
From Breakfast	$1,622,060		18.61
		$8,717,660	100
Variable costs
Food	$405,515		4.65
Beverages	$243,309		2.79
House keeping	$939,510		10.78
Other supplies	$398,580		4.57
Salaries & Wages	$480,000		5.51
Marketing expenses	$144,000		1.65
Maintenance	$25,000		0.29
Other operating expenses	$100,000		1.15
		$2,735,914
Contribution Margin		$5,981,746	68.62
Fixed Costs
Salaries & Wages	$1,920,000		22.02
Marketing expenses	$336,000		3.85
Maintenance	$225,000		2.58
Depreciation for fixtures and fittings	$1,900,000		21.79
Other operating expenses and shuttle bus insurance	$50,000		0.57
		$4,431,000
Operating Profit (EBIT)		$1,550,746	17.79

1. An increase and decrease in the sales volume by 20%.

INCOME STATEMENT FOR THE YEAR ENDING 31^st December 2020

	Increases by 20%		Decreases by 20%
	Amount	Total	%	%change		Amount	Total	%	% change
Sales Revenue
From Room	$8,514,720					$5,676,480
From Breakfast	$1,946,472					$1,297,648
		$10,461,192					$6,974,128
Variable costs
Food	$486,618		4.65			$324,412		4.65
Beverages	$291,970.8		2.79			$194,647.2		2.79
House keeping	$1,127,412		10.78			$751,608		10.78
Other supplies	$478,296		4.57			$318,864		4.57
Salaries & Wages	$576,000		5.51			$384,000		5.51
Marketing expenses	$172,800		1.65			$115,200		1.65
Maintenance	$30,000		0.29			$20,000		0.29
Other operating expenses	$120,000		1.15			$80,000		1.15
		$3,283,097					$2,188,731
Contribution Margin		$7,178,095	68.62	0.00			$4,785,397	68.62	0.00
Fixed Costs
Salaries & Wages	$1,920,000		18.35			$1,920,000		27.53
Marketing expenses	$336,000		3.21			$336,000		4.82
Maintenance	$225,000		2.15			$225,000		3.23
Depreciation for fixtures and fittings	$1,900,000		18.16			$1,900,000		27.24
Other operating expenses and shuttle bus insurance	$500,00		0.48			$50,000		0.72
		$4,431,000					$4,431,000
Operating Profit (EBIT)		$2,747,095	26.26	8.47			$354,396.8	5.08	-12.71

2. An increase in the room sales price by 10%.

INCOME STATEMENT FOR THE YEAR ENDING 31^st December 2020

Increase in room sales price by 10%
	Amount	Total	%	% change
Sales Revenue
From Room	$7,805,160
From Breakfast	$1,622,060
		$9,427,220
Variable costs
Food	$405,515		4.30
Beverages	$243,309		2.58
House keeping	$939,510		9.97
Other supplies	$398,580		4.23
Salaries & Wages	$480,000		5.09
Marketing expenses	$144,000		1.53
Maintenance	$25,000		0.27
Other operating expenses	$100,000		1.06
		$2,735,914
Contribution Margin		$6,691,306	70.98	2.36
Fixed Costs
Salaries & Wages	$1,920,000		20.37
Marketing expenses	$336,000		3.56
Maintenance	$225,000		2.39
Depreciation for fixtures and fittings	$1,900,000		20.15
Other operating expenses and shuttle bus insurance	$50,000		0.53
		$4,431,000
Operating Profit (EBIT)		$2,260,306	23.98	6.19

3. A decrease in the food and beverage costs by 15% though a change of the supplier.

INCOME STATEMENT FOR THE YEAR ENDING 31^st December 2020

Decrease in Food & Beverage Cost by 15%
	Amount	Total	%	% change
Sales Revenue
From Room	$7,095,600
From Breakfast	$1,622,060
		$8,717,660
Variable costs
Food	$344,688		3.95
Beverages	$206,813		2.37
House keeping	$939,510		10.78
Other supplies	$398,580		4.57
Salaries & Wages	$480,000		5.51
Marketing expenses	$144,000		1.65
Maintenance	$25,000		0.29
Other operating expenses	$100,000		1.15
		$2,638,590
Contribution Margin		$6,079,070	69.73	1.12
Fixed Costs
Salaries & Wages	$1,920,000		22.02
Marketing expenses	$336,000		3.85
Maintenance	$225,000		2.58
Depreciation for fixtures and fittings	$1,900,000		21.79
Other operating expenses and shuttle bus insurance	$50,000		0.57
		$4,431,000
Operating Profit (EBIT)		$1,648,070	18.90	1.12

4. A decrease in the full-time salaries and wage rate costs by 10%.

INCOME STATEMENT FOR THE YEAR ENDING 31^st December 2020

Decrease in Full Time salaries & wage rate Cost by 10%
	Amount	Total	%	% change
Sales Revenue
From Room	$7,095,600
From Breakfast	$1,622,060
		$8,717,660
Variable costs
Food	$405,515		4.65
Beverages	$243,309		2.79
House keeping	$939,510		10.78
Other supplies	$398,580		4.57
Salaries & Wages	$480,000		5.51
Marketing expenses	$144,000		1.65
Maintenance	$25,000		0.29
Other operating expenses	$100,000		1.15
		$2,735,914
Contribution Margin		$5,981,746	68.62	0.00
Fixed Costs
Salaries & Wages	$1,728,000		19.82
Marketing expenses	$336,000		3.85
Maintenance	$225,000		2.58
Depreciation for fixtures and fittings	$1,900,000		21.79
Other operating expenses and shuttle bus insurance	$50,000		0.57
		$4,239,000
Operating Profit (EBIT)		$1,742,746	19.99	2.20

Calculation of Break-even

Base case

	Double Room		Suites Room
Selling price	$120		$180
Variable costs:
House keeping	$16.50		$16.50
Other supplies	$7.00		$7.00
Salaries & Wages	$8.43		8.43
Marketing expenses	$2.53		2.53
Maintenance	$0.44		0.44
Other operating expenses	$1.76		1.76
	$36.65		36.65
Contribution for occupancy(per room night)	$83.35		$143.35
Contribution for breakfast(per room night)	$17.28		$15.00
Total contribution (per room night)	$100.63		$158.35
Contribution per package		$1365.86
Fixed costs		$4,431,000.00
Break even (in packages)		$3,244.12
Break even (room nights)	$38,929.45		$3,244.12

Double room
Occupancy	$3,244,606.21
Breakfast	$672,700.89
Suites room
Occupancy	$465,031.10
Breakfast	$48,661.81
Total contribution	$4,431,000.00
Fixed Costs	$4,431,000.00
Profit	0.00

1. Increase in room sales price by 10%

	Double Room		Suites room
Selling price	$132		$198
Variable costs:
House keeping	$16.50		$16.50
Other supplies	$7.00		$7.00
Salaries & Wages	$8.43		$8.43
Marketing expenses	$2.53		$2.53
Maintenance	$0.44		$0.44
Other operating expenses	$1.76		$1.76
	$36.65		$36.65
Contribution for occupancy(per room night)	$95.35		$161.35
Contribution for breakfast(per room night)	$17.28		$15.00
Total contribution (per room night)	$112.63		$176.35
Contribution per package		$1527.86
Fixed costs		$4,431,000.00
Break even (in packages)		$2,900.14
Break even (room nights)	$34,801.72		$2,900.14
Double room
Occupancy	$3,318,198.11
Breakfast	$601,373.76
Suites room
Occupancy	$467,925.98
Breakfast	$43,502.15
Total contribution	$4,431,000.00
Fixed Costs	$4,431,000.00
Profit	0.00

2. Decrease in Food & Beverage Cost by 15%

	Double Room		Suites room
Selling price	$120		$180
Variable costs:
House keeping	$16.50		$16.50
Other supplies	$7.00		$7.00
Salaries & Wages	$8.43		$8.43
Marketing expenses	$2.53		$2.53
Maintenance	$0.44		$0.44
Other operating expenses	$1.76		$1.76
	$36.65		$36.65
Contribution for occupancy(per room night)	$83.35		$143.35
Contribution for breakfast(per room night)	$19.01		$16.50
Total contribution (per room night)	$102.35		$159.85
Contribution per package		$1,388.09
Fixed costs		$4,431,000.00
Break even (in packages)		$3,192.15
Break even (room nights)	$38,305.83		$3,192.15

Double room
Occupancy	$3,192,630.48
Breakfast	$728,117.29
Suites room
Occupancy	$457,581.71
Breakfast	$52,670.52
Total contribution	$4,431,000.00
Fixed Costs	$4,431,000.00
Profit	0.00

3. Decrease in Full Time salaries & wage rate cost by 10%

	Double Room		Suites room
Selling price	$120		$180
Variable costs:
House keeping	$16.50		$16.50
Other supplies	$7.00		$7.00
Salaries & Wages	$8.43		$8.43
Marketing expenses	$2.53		$2.53
Maintenance	$0.44		$0.44
Other operating expenses	$1.76		$1.76
	$36.65		$36.65
Contribution for occupancy(per room night)	$83.35		$143.35
Contribution for breakfast(per room night)	$19.01		$16.50
Total contribution (per room night)	$102.35		$159.85
Contribution per package		$1,388.09
Fixed costs		$4,239,000.00
Break even (in packages)		$3,053.83
Break even (room nights)	$36,646.00		$3,053.83

Double room
Occupancy	$3,054,290.36
Breakfast	$696,567.19
Suites room
Occupancy	$437,754.20
Breakfast	$50,388.25
Total contribution	$4,239,000.00
Fixed Costs	$4,239,000.00
Profit	0.00

After Tax Profit

After tax income	$300,000
Tax (40%)	$200,000
Taxable income	$500,000
Interest expenses	$540,000
EBIT	$1,040,000
Fixed cost	$4,431,000
Required contribution	$5,471,000
Contribution per package	1,365.86
Required rooms (in packages)	4,005.548
Required room nights
Double room	48,067
Suites room	4,006
Contribution from
Double room
Occupancy	4,006,148
Breakfast	830,591
Suites room
Occupancy	574,179
Breakfast	60,083
Required contribution	$5,471,000
Fixed cost	$4,431,000
EBIT	$1,040,000
Interest Expenses	$540,000
Taxable income	$500,000
Tax (40%)	$200,000
Required Income	$300,000

The post Individual Problem-Solving Assignment appeared first on My Assignment Online.

Expert Help With This Assignment — On Your Terms