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Wage Cost Percentage.

This measure compares wage cost in dollars to revenue produced in dollars. It measures the dollar cost in wages incurred with respect to revenue level resulting from rooms sold or meals served. Wage cost percentages include;

Front office wage cost. Total front office wage cost in dollars divided by total room revenue in dollars. Washington Hilton has 20 employees working at the front office. Expected room revenue per day is $60,000. Total front office wages are 20*8*10=1600. Percentage equals; (1600/60,000) %= 26.67%. This is within the acceptable level as the hotelís guidelines stipulate that this percentage should not exceed 30%

Wage cost per occupied room. The formula entails two steps. First, labor hours used is multiplied by hourly wage rate to give the wage cost in dollars. Second, the amount calculated is divided by the rooms occupied. In the case of Washington Hilton, labor hours used are 1,600 (200*8), the hourly wage rate is $10. The rooms occupied are 600. The wage cost per occupied room will therefore be $26.67.

Housekeeping wage cost. Calculated by dividing total housekeeping wages cost by total rooms revenue. Washington Hilton wages are $6,400 while the revenue is $60,000. (6400/60,000)=10.67%

Restaurant wage cost. Calculated by dividing total restaurant wage cost in dollars by total restaurant revenue in dollars. Washington Hilton has 100 employees working at the restaurant. Their total wage cost is $8,000(100*8*10), while the restaurant revenue is $20,000(400*50).

The percentage equals (8,000/20,000) is 40%. Thought the percentage appears high, it is within acceptable limits as most of the meals are sold to customers, who are staying in the hotel. The cost of food for such customers is subsidized to ensure they utilize the hotelís restaurant.

Labor productivities are best measured with the above probabilities as they just measure labor input with labor output. They indicate how well labor wages are managed.

Weekly Internal Management Reports.

Information from these reports reviews and criticizes previous weekís performance. They are also used to forecast for the following week. Operations in hotels are planned for on weekly basis and therefore these reports are the primary documents of control by managers in the various departments.

Weekly Revenue Forecast-It is a detailed day by day forecast for the upcoming week expected revenue.

Weekly Wage and Cost Scheduling- Expected revenue determines the labor force required. Washington Hilton determines the labor requirement for the coming week on all Wednesdays. By correctly using the ratios above, management is able to accurately plan for the labor requirements in future.

Profitability forecasting- Profit are calculated by subtracting total expenditure from total revenue. Forecasted profits are calculated by subtracting forecasted expenses from forecasted income.

Monthly Internal Management Reports.

Having collected daily and weekly reports, the information content is enough to prepare monthly profit and loss statements.



Monthly P&L Statement-Itís a useful management tool since it shows the financial results of the operational performance for the month. The P&L attracts the greatest scrutiny among all financial statements. Management must therefore take great care to ensure that they report acceptable, fair and accurate P&Ls. The monthly consolidated P&L provides a detailed summary of every departmentís revenues and expenses. The P&L presents the big picture of the hotelís performance. P&Ls are required to enable the user to compare the present period with the past. As accountants prepare the statement, they have to include past period performance. The P&L also identifies departments that are performing and those underperforming. This is an important indicator to top level management as it identifies managers who are effective and efficient.

 

Sample Departmental P&L for Washington Hilton.

Washington Hilton,

Monthly Profit and Loss Statement,

For the Month of December 2013.

  Forecast Actual Difference/Variation  
  Dollars Percentage Dollars Percentage Dollars Percentage  
Room Revenue 1,860,000   1,900,000   40,000 2.1505  
Management Wages (fixed expense) 140,000 7.5269 140,000 7.3684 - -  
 
Hourly Wages (variable expense) 192,000 10.3226 200,000 10.5263 8,000 4.1667  
Contract Cleaning (fixed expense) 250,000 13.4409 245,000 12.8947 (5,000) (2.0000)  
Guest Supplies (variable expense) 80,000 4.3011 85,000 4.4737 5,000 6.2500  
Reservation Cost (variable expense) 220,000 11.8280 210,000 11.0526 (10,000) (4.5455)  
Total Fixed Expense 390,000 20.9677 385,000 20.2632 (5,000) (1.2821)  
Total Variable Expense 492,000 26.4516 495,000 26.0526 3,000 0.6098  
Total Expenses 882,000 47.4194 880,000 46.3158 (2,000) (0.2268)  
Total Profit 978,000 52.5806 1,020,000 53.6842 42,000 4.2945  
Retention or Flow Thru 42,000  

 

The forecasted revenue for the Rooms Department was $1,860,000.Expected departmental profits were at $978,000. The forecasted profit percentage is 52.58%, which means that 0.526 cents out of every revenue dollar will be profit. Actual Room Revenue was $1,900,000 which is $40,000 more than the forecasted revenue. The percentage increase of the $40,000 incremental revenue is 2.15% ($40,000/$1,860,000). In other words, revenues were 2.15% higher than forecast.

P&L Statement; up to November 30th 2013.

Washington Hilton            
Consolidated Profit & Loss Statement for the period Jan-Nov 30th 201        
  Jan-Nov 30th 2013   2012 Annual Report  
  Actual Budget Last Year Actual Budget Last Year
Room Revenues 20,795,500 20,357,700 18,377,172 20,088,000 20,000,000 18,000,000
Restaurant Revenues 7,114,250 6,785,900 6,125,724 6,696,000 6,600,000 5,940,000
Total Hotel Revenues 27,909,750 27,143,600 24,502,896 26,784,000 26,600,000 23,940,000
Rooms Profit 11,163,900 10,704,210 9,662,836 10,562,400 10,500,000 9,450,000
Restaurant Profit 437,800 354,618 320,118 349,920 325,000 292,500
Total Hotel Department Profit 11,601,700 11,058,828 9,982,954 10,912,320 10,825,000 9,742,500
General and Administrative 1,641,750 1,641,750 1,482,030 1,620,000 1,620,000 1,458,000
Heat, Light, and Power 87,560 65,670 59,281 64,800 60,000 54,000
Repairs and Maintenance 54,725 49,253 44,461 48,600 48,000 43,200
Accident Expense 27,363 27,363 24,701 27,000 25,000 22,500
Training Expense 32,835 30,646 27,665 30,240 30,000 27,000
Sales and Marketing 32,835 32,835 29,641 32,400 32,000 28,800
National Sales and Marketing 16,418 16,418 14,820 16,200 16,000 14,400
Total Expense Centers 1,893,485 1,863,934 1,682,598 1,839,240 1,831,000 1,647,900
House Profit 9,270,415 8,840,277 7,980,238 8,723,160 8,994,000 8,094,600
Fixed Expenses 2,189,000 2,189,000 1,976,040 2,160,000 2,200,000 1,980,000
Net House Profit 7,081,415 6,651,277 6,004,198 6,563,160 6,794,000 6,114,600

 

In the month of December 2013, Washington Hilton recorded an average of 600clients daily who spent the night at their rooms. The charge per night is $100. The restaurant registered a daily average sale of 400 meals. Each meal was sold at $50. During the month, the number of employee/casuals was 200, each working 8 hours a day at a rate of $10 per hour. The consolidated monthly profit and loss statement was as follows;

 

Washington Hilton
Consolidated Profit & Loss Statement for the Month of Dec 2013
  Current Period 2012 Annual Report
  Actual Budget Last Year Actual Budget Last Year
Room Revenues 1,900,000 1,860,000 1,674,000 20,088,000 20,000,000 18,000,000
Restaurant Revenues 650,000 620,000 558,000 6,696,000 6,600,000 5,940,000
Total Hotel Revenues 2,550,000 2,480,000 2,232,000 26,784,000 26,600,000 23,940,000
Rooms Profit 1,020,000 978,000 880,200 10,562,400 10,500,000 9,450,000
Restaurant Profit 40,000 32,400 29,160 349,920 325,000 292,500
Total Hotel Department Profit 1,060,000 1,010,400 909,360 10,912,320 10,825,000 9,742,500
General and Administrative 150,000 150,000 135,000 1,620,000 1,620,000 1,458,000
Heat, Light, and Power 8,000 6,000 5,400 64,800 60,000 54,000
Repairs and Maintenance 5,000 4,500 4,050 48,600 48,000 43,200
Accident Expense 2,500 2,500 2,250 27,000 25,000 22,500
Training Expense 3,000 2,800 2,520 30,240 30,000 27,000
Sales and Marketing 3,000 3,000 2,700 32,400 32,000 28,800
National Sales and Marketing 1,500 1,500 1,350 16,200 16,000 14,400
Total Expense Centers 173,000 170,300 153,270 1,839,240 1,831,000 1,647,900
House Profit 847,000 807,700 726,930 8,723,160 8,994,000 8,094,600
Fixed Expenses 200,000 200,000 180,000 2,160,000 2,200,000 1,980,000
Net House Profit 647,000 607,700 546,930 6,563,160 6,794,000 6,114,600

General and administrative expenses include system maintenance costs, commissions and travel allowances of top-level managers. They actual cost and the budgeted cost are the same as Washington Hilton has adopted a policy to check on the variance of these costs.

Heat, Light &Power- The actual cost was higher than the budgeted cost owing to increased room and restaurant revenue. This cost is determined by the government as it provides electricity which powers Washington Hilton. The December bill was determined by the power supplier.

Repairs and maintenance. The cost is determined by past trends. In the month of December the cost was slightly higher than the budget. As from June 2013, Washington Hilton adopted outsourcing of repair and maintenance services to enhance efficiency. The company has seen great improvements since Smart Repairs undertook the responsibility of repairs and maintenance in the hotel. The actual amount indicated is the bill received from Smart Repairs.

Accident Expense. Minor accidents are common in hotels; however, the hotel loses money if the accidents are rampant. In the month of December, accidents reported, treated and billed to Hilton cost the hotel $2,500. Individuals who are involved in accidents in the hotel are treated at Washington Hospital, which is a five-minute drive from the hotel. The hospital sends a monthly bill for payment by 15th of the following month.

Training Expense. Hotel business depends highly on economic conditions. Washington Hilton therefore hires and dismisses casuals depending on the number of clients visiting the hotel. This attracts training costs, which must be incurred every time the hotel hires new employees. The hotel employed an additional 50 employees in anticipation of the Christmas period. The cost of training these new personnel was $3,000. This was $200 more than management expected.

Sales and Marketing. To ensure that the hotel remains competitive, management sets aside some amount for promotion. In the month of December, the hotel paid $2,000 for a TV advert on CNN. The $1,000 was spent on online marketing.

General Ledger Transactions for the above Revenues and Expenses.

1. To record Room Revenue Earned in Dec;

DR Bank A/c 1,900,000

CR Room revenue Income A/c 1,900,000

2. To record Restaurant Revenue Earned in Dec;

DR Bank A/c 650,000

CR Restaurant Revenue Income A/c 650,000

3. To record General and Admin Expenses in Dec.

DR General&Admin Expenses A/c 150,000

CR Bank A/c 150,000

4. To record Heat Light & Power Expense incurred in Dec.

DR Heat, Light & Power 8,000

CR Bank A/c 8,000.

5. To record Repairs & Maintenance Expense incurred in Dec

DR Repairs & Maintenance A/c 5,000

CR Bank A/c 5,000

6. To record Accident Expense incurred in Dec

DR Accident A/c 2,500

CR Bank A/c 2,500

 

 

7. To record Training Expense incurred in Dec

DR Training A/c 3,000

CR Bank A/c 3,000

8. To record sales & marketing Expense incurred in Dec

DR Sales & Marketing A/c 3,000

CR Bank 3,000

9. To record National sales &marketing Expense in Dec

DR National Sales & Marketing A/c 1,500

CR Bank 1,500

 


Date: 2015-01-12; view: 402


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