Solution
Pranjal answered on
May 29 2021
ASSESSMENT – 3
HOSPITALITY MANAGEMENT
Introduction
The analysis of cost structure and financial performance may be considered to be one of the most significant aspect in the study of business. This is because such analysis may take into consideration several factors which are both internal and external to the business. The given paper deals with the analysis of a given case study of a hospitality business based on the provided financial figures. The paper has been prepared in a report format primarily in two parts. In the first part of the report, the entire analysis has been performed to identify the trend in various line items of the financial statement of the business. Such discussions have been conducted with reference to the relevant figured and tales. In addition, in the second part of the paper, the effort has been made to provide strategic recommendation so that the business may attain sustainability in the long run.
TASK 1
Task A
The given data set shows that the actual figure for 2018-19 and the budgeted figure for 2019-20 has been substantially different. The staff cost has been decreased by 5% with reference to turnover and other expenses have increased by almost 4% with reference to the total turnover of the business. The figure below shows such comparison graphically as stated herein.
In this context, it may be interesting to note that the total expenses pertaining to staff cost, food cost, beverage cost and other expenses may stand at 45% of total turnover in both the scenario. In other words, the gross profit percentage with reference to turnover has not been changed in the budgeted figure as compared to the previous year’s actual figure, which is 55%. The figure herein shows line item wise comparison between 2018-19 and 2019-20.
From the figure above it shows that other expenses have increased considerably and such variance has been unfavourable. The rest of the expenses head may show a favourable balance and variance. In fact, the food cost and beverage cost have not changed in the budgeted figure as well. Therefore, the management should concentrate on the area of other expense and introspect why the same has been increased considerably. The section below describes the fluctuations in each of the line items above, in
ief.
· Turnover: From the figure above, it has been observed that the turnover has increased by more than 22% in in the cu
ent financial year as budget as compared to the previous year of 2018-19. Such increase is primarily attributable to the increase in room occupancy and average room rate as stated elsewhere in the paper
· Staff Cost: As far as staff cost is concerned, it has been observed that the same has decreased 5% which also denotes a favourable variance from the business context no such downfall in cost has been made possible through to strict cost control and revision of compensation policy of the management of the company
· Food Cost: In terms of food cost, it has been observed that the food cost has remained static in both the figure and in this context it may be noted that the food cost comprises of only 8% of total turnover which is relatively lower and therefore any fluctuation in the food cost may be considered to be not so material as far as management strategic planning is concerned.
· Beverage Cost: Same like food cost, the beverage cost is also remained stable at 2% which is sizeably lower in the cost structure of the business. Incidentally the same has remained static in the two years denoting the fact that the operation of the restaurant business has been performed in line with the budget set for the purpose in terms of cos structuring,
· Other Expenses: As noted in the paper, the other expenses have increased on from 6% in the year 2018-19 to almost 10% in the budgeted figure for the year 2019-20. Such increase of almost 4% leads to an unfavourable variance which may need to be investigated by the management now. Such cost escalation may be due to various factors such as inappropriate overhead allocation or inefficient administrative controlling.
· Gross Profit: Finally the gross profit has been observed to be remained stable at 55% of total turnover, in other words, the increase in other expense has been set off and nullified with the decline in staff cost as a result the total cost of sales has been stable for both the year. As a result, gross profit has been kept at the same level in the budgeted figure of 2019-20 as well. The figure herein shows such a comparison in
ief.
Task B
If the given conditions are being met with reference to the changes in room availability, occupancy rate, average room rate and expenses, then the total revenue may also get changed considerately.
Actual Revenue 2018/2019
$1,09,59,695.35
Forecasted Revenue 2019/2020
$1,51,71,758.61
Change (in %)
39% Increase
It may be observed that the total revenue for 2018-19 stood at $10,959,695; whereas, the revised forecasted figure may stand at $15,171,758 approximately. In this context, it will be noted that the increase in the revenue to the extent of almost 39% is primarily attributable to the fact that occupancy rate and average room rate have been sizably increased. Though the other expenses...