Spring 2006-Hospitality Finance

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					Spring 2006-Hospitality Finance
HAMG 2301

Final Exam

This exam is due to my office no later than 7:30 p.m. on May 9, 2003. Email it to vlawrenc@austincc.edu. Read
the following instructions carefully. This exam is divided into two parts; 1) Analysis and 2) Multiple Choice.

Instructions for Analysis Section:

You may use the materials (notes, books, etc) that we used as learning tools during the semester for this exam.
The purpose of this exam is to test your mastery of basic decision making skills pertaining to fiscal problem issues
that arise in the hospitality industry. The basis of the exam pertains to problems that a department of a hotel is
having. You have been asked to consult on the problem and provide solutions regarding these areas; labor
management, forecasting, estimating expenditures, and profit management.

As a consultant you have asked for the department to write a narrative of the information they seek as well as
the problems they are having which has been provided. Using the information provided in class as well as in
your book, complete an analysis of the problem areas and provide and explanation using common
accounting calculations.

The final area of the exam you will write a narrative stating your conclusions and suggestions of improvement.
You will need to refer to your work and provide clear and concise reasoning about your decisions.

Grading for Analysis Section

This section will be graded on the following areas;

Worksheets – calculations and knowledge
Narrative- proper use of analysis, realism of analysis and professional presentation
Background Information

Café Too Lucky in the Heartbreak Hotel is in trouble. After a fantastic opening in January 2006, they are now
finding that they have had to close their doors but they do not know why. The management is bewildered and
have realized that they need help. On March 31st, they were forced to close “temporarily” and seek
consultation from you. The Hotel General Manager, Susie soLucky was able to transfer money to the café and
bring the books to zero and pay the final payroll; however, she has no more money and will not spend anything
until the consultation is completed. The entire management team realizes that they do not have the
knowledge to operate effectively and need your assistance.

You have asked them to provide you with an 1) income statement from opening day to closing day, 2) a
monthly sales analysis and 3) a labor worksheet listing all the positions they need. The café is open from 8 a.m.-
1 0 p.m., 7 days a week. The capacity is 150 guests. The check average for the day over the three months the
café was open was $9.00.

You have found out that fixed expenses are paid by the hotel and the café only has to account for costs of
sales (food and beverage) and labor expenses. They do not have any fixed expenses. The salaries for the 3
managers are set and paid once per month. These positions will stay in tact.

Your analysis;

Based on the information below the goals of your analysis are the following;

   Section One: Determine what the percentage costs of sales are by completing the “Common Size
   Percent” column in the income statement provided on the next page. From what you know about
   operating a hospitality revenue center, suggest new cost percentages that would assist in bring the
   statement more into balance. Complete the profit and loss worksheet (provided on page 3) for one
   month. Remember to forecast sales. You may assume that the split between food sales and beverage
   sales will remain the same. Also, the hotel would like to see at least a 5% profit from this revenue center.

   Write a narrative in the space provided under the Profit and Loss Statement about your decisions.

    DO NOT INCLUDE cents on your calculations

   Section Two: Provide the management team with suggestions on how to keep their labor in line. They will
   have to hire all new staff members .You will want to forecast how many full time positions are needed for
   coverage. For this analysis the following data is necessary; open 365 days, each staff members works 5
   days per week (8 hour shift), the wage of $5.00 per hour must be paid, no fringe is paid to staff members,
   each staff member gets 7 sick days, 6 holidays and 5 personal days. No vacation is paid. A worksheet has
   been provided that shows the position they will be hiring for. HOWEVER, you do not need to determine how
   many individuals need to be hired for each position. You only need to provide them with a total number of
   staff members that the department can carry.

   Hints on this section: You will need to determine how many full time employees need to be hired first.
   Second, you will need to determine how much you will pay this group per year and divide it by 12 to
   determine your monthly cost. You cannot change how many full time employees are needed. Also, the
   management team positions will stay in tact.

   Section Three: Provide the management team with a cost/volume/profit analysis for their operation.
   Currently, they do not know how to determine a break even analysis or how to control their variable costs
   to ensure profit. As stated above, the hotel would like to see a 5% profit on the operation.
Café Too Lucky: Background Information and Statements

                                            Common                     Complete this column
Budget- Income Statement
                              Amount        Size
Sales (Jan-March)
Food                          $111,141
Beverage                      $43,630
Total sales                   $154,771

Cost of sales
Food                          $91,349
Beverage                      $41,107
Total cost of sales           $132,456
Gross profit                  $19,792

Controllable Expenses-Labor
Staff Wages                   $48,236
Administration Salaries       $19,792
Total Labor Expense           $68,028

Operating profit              $(45,713)

Month                         Revenue (Sales)    Increase In Dollars   Increase in
                                                                       Percentage (%)
January                       $48,982            Opening Month         Opening Month
February                      $52,277            $3,295                6.7%
March                         $53,512            $1,235                2.4%
Section One: Profit and Loss Statement

Complete this form. Please note that Staff Wages must reflect the minimum amount of staff necessary. This is
figured by completing the labor section of this exam. Administration salaries also must be in place and cannot
be changed. Also, profit must be set a 5% minimum. Hint: there is a possibility that profit can be higher than

Please note food cost percentage cannot drop below 24%; beverage cost cannot drop below 10%.

Profit and Loss Statement Goal Amount          Size
Total sales

Cost of sales
Total cost of sales
Gross profit

Controllable Expenses-Labor
Staff Wages
Administration Salaries
Total Labor Expense

Operating profit

Narrative and Explanation:
Section Two: Labor Control

Administrative (Restructuring of the payroll amounts have been completed by the hotel comptroller. The
monthly salaries you see below will be instituted when the restaurant opens for business again)
Position                          Department            Pay
Manager                           Administrative        $ 1100.00
Manager                           Administrative        $ 1100.00
Chef/ Manager                     Administrative        $ 1100.00

Staff Members needed on hand each day
Cooks                      Preparation
Pantry                     Preparation
Pastry                     Preparation

Host/ hostess                 Service
Servers                       Service
Bus persons                   Service
Dishwashers                   Sanitation

How many full time staff members can the department carry?

Narrative and Explanation:
Section Three: Profit Analysis

You must provide a break even analysis and variable cost analysis based on your profit and loss statement.
Remember there are no fixed costs. You must answer the following questions and show your work.

      What is the Break Even Sales Amount for the month you provided the profit and loss statement on?

      What is variable cost dollar amount beyond the break even amount that restaurant can have for this
       same month?

Narrative and Explanation:
Multiple Choice- Choose the answer that best corresponds to the statement given.                 BOLD, Highlight or
   Underline your answer

1. The budget preparation procedure:
    (a) is the sole responsibility of the controller.
    (b) depends on the size and nature of the establishment.
    (c) starts from the top down.
    (d) commences after the period concerned has started.
2 . An advantage of budgeting is that:
    (a) those involved in budgeting are obliged to look ahead and be flexible.
    (b) the unpredictable future is an excuse for not having fairly accurate estimates.
    (c) if budgeted expenses are overestimated, there will be extra money at the end of the period for staff
    (d) staff involved in budgeting will learn about confidential management matters.
3. One of the steps in the budget cycle is to:
    (a) increase the forecast return on investment over the previous period.
    (b) establish goals that are 50 percent above last year.
    (c) use variance analysis to compare a manager’s budget to the department budget.
    (d) improve the effectiveness of budgeting as a result of the budgeting process.
4. Limiting factors in budgeting are factors that:
     (a) limit the time that can be spent on budgeting.
     (b) must be considered when establishing sales revenue goals and expense budgets.
     (c) prevent a department head from talking to his staff about budgeting.
     (d) ensure that sales revenue goals will always be established at the highest limits.
5. If restaurant has budgeted 1,000 customers at an average check of $9.00 and actual customers were 800
   with an actual average check of $9.50, then:
   (a) actual sales revenue will be higher than budgeted.
   (b) we can assume that the higher average check is keeping customers away.
   (c) the cause of a significant difference between actual and budgeted figures should be investigated.
   (d) because of slower service fewer customers could be served.
6. A restaurant has 125 seats with an average check of $8.00 and a daily seat turnover of 2.5. It is open 5 days
   a week and the average check is forecast to increase by 10 percent in the next year. Next year’s
   budgeted sales revenue will be:
   (a) $286,000.
   (b) $650,000.
   (c) $715,000.
   (d) $ 13,750.
7. A restaurant has 125 seats with an average check of $8.00 and a daily seat turnover of 2.5. It is open 5 days
   a week and the average check is forecast to increase by 10 percent in the next year. Next year’s
   budgeted sales revenue will be:
   (a) $286,000.
   (b) $650,000.
   (c) $715,000.
   (d) $ 13,750.
8. An assumption under CVP analysis is that:
    (a) fixed costs will remain fixed in the long run.
    (b) all relevant costs can be broken down into their fixed and variable elements.
    (c) variable costs will change in inverse fashion with sales revenue.
    (d) total costs will not increase as sales revenue increases.
9. Sales revenue is $250,000, fixed costs are $90,000, profit is $50,000, and sales price per unit is $25.00. Variable
   cost per unit is:
   (a) $11.00.
   (b) $15.00.
   (c) $20.00.
   (d) $25.00.
10. On a breakeven graph, the breakeven point is the point where the:
    (a) sales revenue and total cost lines intersect.
    (b) sales revenue and fixed cost lines intersect.
    (c) sales revenue and variable cost lines intersect.
    (d) total cost line intersects the vertical axis.
11. Fixed costs are $90,000, profit required is $10,000, and variable costs are 40 percent. Sales revenue will have
    to be (to nearest $1,000):
    (a) $140,000.
    (b) $160,000.
    (c) $167,000.
    (d) $133,000.
12. Fixed costs are $85,000, operating income required is $25,000, rent income is $5,000, and the contribution
    margin is 35 percent. Sales revenue will have to be (to nearest $1,000):
    (a) $161,000
    (b) $300,000
    (c) $185,000
    (d) $371,000
13 A college’s food operation has an average meal price of $6.00. Variable costs are $3.75 per meal and fixed
   costs total $75,000. How many meals must be sold to provide an operating income of $30,000?
   (a) 13,333
   (b) 33,333
   (c) 12,500
   (d) 46,667

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