Module Learning Outcomes

(from module syllabus)
 

1.   Analyse and evaluate the informational requirement of management, particularly in relation to decisions involving revenues and costs and other financial criteria.

2. Select and apply appropriate cost and   management accounting methods and techniques.

 

TASK DESCRIPTION

 

Task 1

The Sir Thomas is a 3-star Boutique Hotel in Liverpool, United Kingdom.  The hotel has 39 rooms for which an average rate of £100 per night is charged, irrespective of whether the room is occupied by one, two or three people.

From the following information which relates to the Hotel rooms only, you are required to prepare a month by month cash budget forecast for January 2021 to December 2021 (show each month separately).  Budgets related to the restaurant are recorded separately.  (60% of assignment total mark)

  • On the basis of past experience and taking account of predicted future developments in the market, the hotel’s management believes that the average nightly demand for 2021 will be:
 

Month                               Predicted Revenue

                                                        £
 

January                                104,329

 

February                                92,820

 

March                                    93,912

 

April                                       91,728

 

May                                      108,108

 

June                                      107,016

 

July                                        109,200

 

August                                  108,108

 

September                             93,912

 

October                                  98,280

 

November                            107,016

 

December                            108,108

 

 

  • Each month, 60% of room sales are made for cash, whilst 40% are made on credit (business accounts), except for October, where the credit sales figure increases to 65
  • Of the rooms paid for via business accounts, payment is received from customers as follows:
  • 53% within one month of the invoice date
  • 46% within two months of the invoice date
  • The balance is not normally received (i.e. it is a bad debt)

Those customers who pay within 30 days of the invoice date will receive a discount of 5% from the hotel

  • It is expected that the hotel will spend £10,000 on a van in April 2021 which will be paid for immediately
  • The hotel pays a fixed annual cost of £12,000 for Laundry services, irrespective of occupancy rates.
  • The hotel’s printing and stationary costs are £500 per month, except for March, August and November where extra printing costs of 35% are incurred due to annual date changes and other amendments.
  • The complimentary toiletries total £7,000 per annum.
  • The complimentary in-room beverages (coffee, tea, sugar, milk and biscuits) are purchased on credit monthly at a cost of £1,000, except when room occupancy rates go over 65%, at which point the cost increases to £1,100. When room occupancy rates increase to 85% or more, the cost increases to £1,200.  All other beverages are covered by a separate budget.
  • The hotel plans to purchase the adjacent building at a cost of £300,000,000 to facilitate future expansion, which will include an extra 20 rooms, a gym, sauna and pool. An initial deposit of 20% of the purchase price will be paid in December, the remainder being paid via a mortgage from January 2022
  • The hotel has been going through regular upgrades of facilities, stock and inventories. Bedding bundles are included in these upgrades. In February 39 bundles will be purchased, to replace those which are old/damaged. Each Bundle costs £30 from the Hotel’s usual supplier.

In May, 39 new kettle tray sets at a cost of £40 each will be purchased as replacement sets.  They will be paid for in full at time of delivery. Also in May, 78 Towel sets at £45 per set will be purchased and paid for a month following receipt.

  • Employee details:
  • There are currently 8 salaried staff at the hotel, totalling £200,000 per annum.
  • There are currently 15 staff who receive a wage, with a combined total of £213,120 per annum
  • The hotel also employs zero-hour contract staff to cover the busy periods, where there is over 50% occupancy. At these times, it is anticipated that 50 staff members will receive a wage of £40 per shift, with each employee working ten shifts within that month.
  • All salaries and wages are inclusive of employer National Insurance contributions.
  • Details of cost payments are as follows:
  • Complimentary shampoos, conditioners and shower gels for guests are all purchased from the usual supplier who allows the hotel a month’s credit before payment
  • All other suppliers are paid two months after receipt of goods
  • Laundry services are paid for quarterly, the next payment is due in March 2021
  • All wages are paid weekly
  • All salaries are paid on the last day of the month
  • Light and heat will be paid quarterly from February, with an anticipated annual cost of £98,000. Annual Business rates of £76,500 will be paid in monthly instalments, starting in April 2020
  • Marketing costs of £26,000 will be incurred in April and October 2021
  • Corporation tax of £849,000 is to be paid in March 2021, which is 9 months after the hotel’s year end.

Annual petrol and diesel costs for the hotel’s motor vehicles is £6,000, with the cost being spread equally throughout the year.

  • The hotel management will refurbish the top floor of the hotel. The contractor anticipates that it will take until October 2021 for the rooms to be ready. Fixtures and fittings will be delivered in July 2021 at a cost of £100,000 and paid in four instalments, beginning in July 2021. Building costs are estimated to be around £200,000 and will be payable in monthly instalments beginning in July 2021, with the final payment being due in October 2021.

Hotel Management have also decided that the public toilets on the ground and first floor will also be refurbished.  This will incur extra decorating costs of £8,000, which will be paid for in October.

The annual general maintenance costs for the Hotel are £40,000 and are spread out monthly within the budget.

  • Every year in September, a cleaning company is employed to undertake a deep clean of the Hotel. This service incurs a cost of £6,000 and will be paid for in November.
  • If the Hotel is overdrawn at the end of any month, it will be charged interest at an annual rate of 5.8%. This will be charged to the company’s account on the 2nd day of the subsequent month.
  • However, if the Hotel is in credit at the end of the month, interest will be credited to its account on the 4th day of the subsequent month calculated at 2.4%.
  • Opening cash balance at 1st January 2021 is £-25,000

The hotel has been the venue for an Accounting conference each November since 2012, which results in full occupancy during the week of the event, which significantly increases the overall occupancy percentage for that month.  The contract for the holding of this event is due for renewal discussions in June 2021.

Task 2

The new chief executive of the hotel has asked you to provide details of the zero-base budgeting technique with a view to implementing this type of budgeting approach in the future.

You are required to prepare a report for the board of directors that:

  • Defines and evaluates the process of zero-base budgeting
  • Assesses the advantages zero-base budgeting has over traditional based
  • How the organisation might introduce such a technique in practical terms