Cost And Performance Management Of Radisson Blu Plaza Hotel Sydney

Cost and Performance Management

Cost and performance management is considered as an important factor that the cost accountants of the companies need to take into account while conducting the costing activities. In the aspect of cost and performance management, they are needed to divide all the costs between fixed and variable cost for the ease in the calculation for the total costs (Cooper, 2017). At the same time, it helps the cost accountants in the identification of the major cost drivers so that correct decision can be taken related to the selection of the correct costing option. At the same time, they are also required to take into consideration the break-even analysis to get the idea about the minimum amount of input they are needed to sell for generating business profit (Hilton & Platt, 2013). The main aim of this report is to analyze and evaluate different aspects of coat and performance management of Radisson Blu Plaza Hotel Sydney.

Identification as well as the determination of the cost drivers is a major activity in the cost management of the companies and there is not any exception of this fact in the provide case. At the time of the determination of the cost drivers of a business, it is needed to mention that the presence of two types of costs can be seen in the business organizations; they are Fixed costs and Variable costs; and both these costs are important for the companies at the time to determine the cost drivers. Fixed costs are independent of output and they remain unchanged throughout the relevant range. On the contrary, variable costs vary with the outputs (Drury, 2013).

Prior to the determination of the cost drivers, it needs to be mentioned that three types of cost drivers are there; they are Volume, Time and Charge. Volume cost drivers are dependent on the units of work and the related cost of the activity increases due to the processing of more units. Time cost drivers are dependent on the length of time taken for the completion of the activity and increase in cost of the activity can be seen based on the required time. Charge cost drivers are directly charged to the cost objectives (Noreen, Brewer & Garrison, 2014).

Cost drivers can be considered as the direct cause of a cost and its effect on the incurred total cost. The presence of some major cost drivers can be seen in the business of Radisson Blu. In case of the wages of the fixed as well as casual employees, the cost driver is the number of labor hours as the company provides their employees with the wages based on the hours they are working for the hotel (Matherly & Burney, 2013). In case of internet charges, number of hours is the cost drivers as the company charges for the use of internet based the number of hours the customers are using internet. Number of guests is the cost driver for free breakfast charges as this cost depends on the number how many guests are taking breakfast.

Identification and Determination of Cost Drivers

The cost driver for electricity and water expenses is number of units used as these costs are determined based on the usage of the units (Appelbaum et al., 2017). The cost driver for public liability insurance and superannuation charges for employees is the number of employees as these expenses are charged based on the number of employees of the hotel. The cost driver for laundry expenses is the number of guests in the hotel as this expense is charged based on the number of guests. Number of minutes is the cost driver for telephone expenses as this expenditure depends on the number of units people talk over the phone (Park & Jang, 2014).   

Particulars	Amount
Total Nos. of days in Peak Season	7
Nos. of Rooms	300
Expected Booking of Room	2100
Room Charges per night	$302
Expected Revenue	$634,200
Variable Cost:
Casual Employees’ Wage	$12,000
Electricity	$5,600
Water Expenses	$2,800
Marketing Charges	$1,200
Laundry Expenses	$350
Superannuation charges for casual employees	$1,140
Total Variable Cost	$23,090
Contribution Margin	$611,110
Contribution Margin per room	$291
Fixed Expenses:
Full Wages	$18,000
Internet Charges	$600
Free breakfast charges	$2,000
Public Liability Insurance	$720
Superannuation charges for full time employees	$1,710
Telephone Expenses	$120
Waste Removal Charges	$960
Total Fixed Expenses	$24,110
Break-Even Point in unit (rooms)	83
Break-Even Point in $	$25,021

Break-even point analysis can be considered as a measurement system for the calculation of margin of safety with the help of the comparison of the revenue amount or units that is needed to be sold for covering the fixed as well as variable costs associated with sales (Morano & Tajani, 2017). In other words, t can be considered as a process for calculating the time of profitability of a project by equating its total revenue with its total expenses. It needs to be mentioned that the main purpose of the break-even analysis is the calculation of the amount of sales that makes the revenues equal to expenses; and the amount of excess revenue is considered as profit after meeting both the fixed and variable costs (Morano & Tajani, 2013). The process to calculate the break-even point is to divide the total fixed costs of production by the price per unit less the variable cost.

It can be seen from the above table that the break-even point in unit for Radisson Blu is 83 rooms and the break-even point in $ is $25,021. It implies that in order to cover all the fixed as well as variable expenses, it is needed for the management of Radisson Blu to do booking of 83 rooms. In other words, the hotel needs to earn revenue of $25,021 in order to cover all the fixed as well as variable expenses (Nagle & Müller, 2017).

Option 1

Particulars	Amount
Contribution Margin per room	$291
Total Fixed Expenses	$24,110
Estimated Profit	$50,000
Estimated Room Booking	255

Option 2

Particulars	Amount
Contribution Margin per room	$291
Total Fixed Expenses	$24,110
Estimated Profit	$30,000
Estimated Room Booking	186

The presence of different kinds of cost drivers can be seen in the earlier discussion. It can be observed from the above discussion that there are some specific kinds of cost drivers are related to the fixed as well as the variable costs and it is needed for the cost accountants to take into account all of these aspects at the time to make the costing related decisions (Christ & Burritt, 2015). It can be seen in the provide scenario that there are some fixed cost for the hotel that are constant irrespective of the numbers of guests and employees; such as the expenses for breakfasts, expenses for the charges of internet and others. All these aspects are needed to take into consideration at the time to make decision related to the selection of Option A or Option B. At the same time, the cost accountants are needed to put their attention towards the variable cost of the hotel. It needs to be mentioned that the variable costs increase or decrease as per the increase or decrease in the inputs (Rieckhof, Bergmann & Guenther, 2015). This is an important factor as this factor that can affect the decision related to the selection of Option A and Option B.

Break-Even Analysis

As per the provide situation, selection of Option A will lead to the profit of $50,000 and the selection of Option B will lead to the profit of $30,000. However, it can be seen from the above table that in Option A, the management of Radisson Blu will have to make the booking of 255 rooms for earning the profit of $50,000 (Laitinen, 2014). On the contrary, the above table also shows that under the Option B, the management of Radisson Blu will have to do the booking of 186 rooms through the agency for gaining a profit of $30,000. Under Option B, the management of Radisson Blu has the option to make the booking of other 114 rooms (300 – 186) without the travel agents to earn more revenues after covering the break event point. On the other hand, under Option A, the management of the hotel will not get the opportunity to generate revenue from the booking without travel agent as they will be left with only 45 rooms (300 – 255) (Klychova, Safiullin & Zakirova, 2014).     

Conclusion and Recommendation

The above discussion indicates towards the fact that there are three types of cost drivers for the companies and the managements of the business organizations are needed to consider these drivers at the time to make the costing related decisions. Some of the major cost drivers of the business of Radisson Blu hotel are number of units, number of employees, number of guests and others.

Based on the above discussion, it can be said that the management of Radisson Blu is needed to consider the selection of Option B for their peak season as it will provide them with the opportunity to generate more revenue. The main reason is that they will be able in providing more hotels for booking without the help of travel agent.

References

Appelbaum, D., Kogan, A., Vasarhelyi, M., & Yan, Z. (2017). Impact of business analytics and enterprise systems on managerial accounting. International Journal of Accounting Information Systems, 25, 29-44.

Christ, K. L., & Burritt, R. L. (2015). Material flow cost accounting: a review and agenda for future research. Journal of Cleaner Production, 108, 1378-1389.

Cooper, R. (2017). Supply chain development for the lean enterprise: interorganizational cost management. Routledge.

DRURY, C. M. (2013). Management and cost accounting. Springer.

Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: creating value in a dynamic business environment. McGraw-Hill Education.

Klychova, G. S., Safiullin, N. Z., & Zakirova, A. R. (2014). Organization of cost accounting of fur farming in controlling concept. Mediterranean Journal of Social Sciences, 5(18), 219.

Laitinen, E. K. (2014). Influence of cost accounting change on performance of manufacturing firms. Advances in Accounting, 30(1), 230-240.

Matherly, M., & Burney, L. L. (2013). Active learning activities to revitalize managerial accounting principles. Issues in Accounting Education, 28(3), 653-680.

Morano, P., & Tajani, F. (2013). Break Even Analysis for the financial verification of urban regeneration projects. In Applied Mechanics and Materials (Vol. 438, pp. 1830-1835). Trans Tech Publications.

Morano, P., & Tajani, F. (2017). The break-even analysis applied to urban renewal investments: a model to evaluate the share of social housing financially sustainable for private investors. Habitat International, 59, 10-20.

Nagle, T. T., & Müller, G. (2017). The strategy and tactics of pricing: A guide to growing more profitably. Routledge.

Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for managers. New York: McGraw-Hill/Irwin.

Park, K., & Jang, S. (2014). Hospitality finance and managerial accounting research: Suggesting an interdisciplinary research agenda. International Journal of Contemporary Hospitality Management, 26(5), 751-777.

Rieckhof, R., Bergmann, A., & Guenther, E. (2015). Interrelating material flow cost accounting with management control systems to introduce resource efficiency into strategy. Journal of Cleaner Production, 108, 1262-1278.