Microsoft Word - QUESTIONS
AF5108 – ACCOUNTING FOR MANAGERS
(2019/20 SEMESTER 1)
INDIVIDUAL ASSIGNMENT
INSTRUCTIONS
1. This is an individual assignment and it must be completed on your own.
2. Complete ALL TWO (2) questions and put your answers in a MS-Word
document file. Format your answer neatly so that it is easy to read and follow.
3. This assignment is due on or before 10:00 am, December 23, 2019 (Monday).
Please submit your assignment through the “Turnitin Assignment” (under the
“Assignment” Tab) in Blackboard. Late assignments will NOT be accepted.
4. You are welcomed to answer the non-computational questions in point form
so long as they are written in complete sentences.
5. Your assignment must go through the “Turnitin” system and generate the
Originality Report when submitting in Blackboard.
6. Plagiarism will be taken seriously. Any student found guilty of this offence
will be given a zero mark for this assignment and may be subject to further
disciplinary actions.
7. The grading of this assignment is based on your efforts, originality of your
esponses, along with accuracy of your work.
QUESTION 1
Acrux Group is a multidivisional business established in Hong Kong since the 1980s.
The firm has two major subsidiaries: Plunkett Hotels and Resorts, and Honshu
Properties.
Plunkett Hotels and Resorts is a five-star resort with presence in major tourist
destinations across Asia-Pacific and Australia. Guests pay an all-inclusive flat rate to
enjoy all the services offered by the resort, which includes accommodation, food and
everages, spa and sauna, and a variety of sport activities organized by the fitness
club. Each service is organized as a department for management purposes. Due to
its excellence services, Plunkett has received numerous awards in the past and it has
een expanded from a single resort hotel to 15 resort hotels.
The General Manager in each Plunkett’s resort is treated as a profit centre, and their
annual bonuses is determined based on the difference between actual as compared
to the budgeted profit at year end. In the past, Plunkett’s annual budget is based on
the projected occupancy rate and expected costs. The annual budget will then be
divided into monthly budgets based on the number of days in the month and seasonal
demand fluctuations.
During the middle of 2017, Plunkett has changed it’s CFO and she felt that the old
udgeting approach does consider the dynamic nature of the tourism market (The
peak season for most of the Plunkett’s resort hotels are in the months of January, July,
August and December). To ensure the budget reflects the most updated demand and
cost information, she adopts the rolling budget approach starting from 2018 fiscal year.
Before the fiscal year begins, the head office sets the target, for each resort, the
variable cost per room occupied for each department (i.e. accommodation, food and
everage, spa, and fitness club), along with the fixed costs target on these
departments for the entire year. Each department’s annual fixed cost target will then
e divided into monthly targets based on the number of days.
Under the new budgeting approach, the General Manager of Plunkett’s resort is
evaluated using the flexible budget. Bonuses are determined based on the difference
etween budgeted and actual expenditures.
The following illustrates the new budget model for Plunkett to be adopted in 2018 for
its Penang resort:
Number of rooms 500
Average daily occupancy rate 75%
Expected daily occupancy XXXXXXXXXX375
Revenue per day per room $1,700
Budgeted revenue / day $ XXXXXXXXXX,500
Daily variable costs per room
Accommodation $ XXXXXXXXXX
Food and beverage $ XXXXXXXXXX
Spa $ XXXXXXXXXX
Fitness club $ XXXXXXXXXX
Total daily variable costs / room $ XXXXXXXXXX
Total variable costs on average
occupancy $ XXXXXXXXXX,000
Annual fixed costs
Accommodation $ 88,000,000
Food and beverage $ 18,000,000
Spa $ 1,600,000
Fitness club $ 2,300,000
Maintenance $ 1,700,000
Administration $ 14,000,000
Total annual fixed costs $ 125,600,000
Daily fixed costs (365 days, rounded) $ XXXXXXXXXX,110
Daily profit $ XXXXXXXXXX,390
The actual resort for the Penang resort in August is as follows:
Total number of guest
days XXXXXXXXXX,540
Revenue per guest day $ XXXXXXXXXX,700
Variable costs
Accommodation $ XXXXXXXXXX,100
Food and beverage $ 3,035,520
Spa $ 2,002,600
Fitness club $ XXXXXXXXXX,660
Fixed costs
Accommodation $ 7,175,013
Food and beverage $ 1,421,753
Spa $ XXXXXXXXXX,584
Fitness club $ XXXXXXXXXX,808
Maintenance $ XXXXXXXXXX,721
Administration $ 1,212,822
After the adoption of the new budgeting system, occupancy rate for Penang resort
from January to August are 80%, 75%, 77%, 70%, 67%, 64%, 67%, 70% respectively.
Another subsidiary of Acrux Group is Honshu Properties. Honshu operates as a
property development business. It mainly owns and operates service apartments in
the Asia Pacific region. Unlike Plunkett Hotels and Resorts, the General Manager of
Honshu Properties is evaluated as an investment centre. Specifically, the general
manager of Honshu is rewarded based on its pre-tax return on assets (ROA). Thus,
the higher its pretax ROA, the more bonus the general manager will enjoy. Cu
ently,
Honshu is considering acquiring a new apartment complex in Thailand known as
Havana Peak with the following information:
Expected revenue $16.6 million
Expected operating expenses $12.59 million
Asset value $20 million
The following are the latest financial information for Honshu in 2018:
Sales $86.5 million
Operating expenses $69.7 million
Total assets $64 million
Acrux estimated that Honshu’s minimum rate of return is 15%.
Required:
a. Determine Plunkett Hotel and Resorts
eakeven occupancy rate per day.
. Using the old budgeting system, prepare the August, 2018 budget to determine
the budgeted profit for the Penang resort (Hint: follow the daily budget
illustration for the Penang budget).
c. Prepare a report to evaluate Penang resort’s performance under the new
udgeting system for August XXXXXXXXXXBriefly comment on the General Manager’s
of Penang resort’s performance.
d. After the adoption of the new budgeting system, almost all other hotels in the
Plunkett Hotel and Resorts exhibit occupancy rates trend like the Penang resort.
In fact, they share similar performance trend as in part (c). Discuss possible
explanations for such observation.
e. Determine Honshu’s ROA in 2018.
f. Based on the information given, will the General Manager of Honshu Properties
acquire Havana Peak? Explain with supporting computations.
g. If the CFO of Acrux Group had the same information as the General Manager
of Honshu, would the CFO of Acrux willing to invest in Havana Peak? Explain
with supporting computations.
h. What is your recommendation to the CFO of Acrux Group as to the performance
measurement and incentive system of Honshu Properties?
QUESTION 2
Wing Wing Limited is a licensed tour operator in Hong Kong and it operates tours
throughout the Asia-Pacific region. Due to increasing competition, the company would
like to drop one of it’s tour: the two-macau trip. An income statement from this tour is
given below:
Ticket revenue (110 seat capacity × 40% occupancy ×
$75 ticket price per person) $3,300
Variable expenses ($15 per person XXXXXXXXXX
Contribution margin $2,640
Tour expenses:
Tour promotion $ 680
Salary of bus driver 360
Fee, tour guide 720
Fuel for bus 160
Depreciation of bus (note 3) 360
Liability insurance, bus (note XXXXXXXXXX
Overnight parking fee, bus 80
Room and meals, bus driver and tour guide 190
Bus maintenance and preparation (note XXXXXXXXXX
Total tour expenses 2,990
Net operating loss $(350)
The following additional information is available on the Macau tour:
1. Bus drivers are paid fixed annual salaries; tour guides are paid for each tour
conducted.
2. An allocation of the salaries of mechanics and other service personnel who are
esponsible for keeping the company’s fleet of buses in good operating condition.
3. Depreciation of buses is due to obsolescence. Depreciation due to wear and tear is
negligible.
4. Liability insurance premiums are based on the number of buses in the company’s
fleet.
5. Dropping the Macau tour would not allow Wing Wing to reduce the number of buses
in its fleet, the number of bus drivers on