Managerial accounting techniques to help them thrive

Managerial accounting techniques to help them dilateGlob onlyy Hotels operators and passenger cars be relying on charabancial accounting techniques to help them extend in the exceedingly competitive and economy recession. The critical aspect of centering on switch magnitude r razeue, minimise greet, align incentive to exertion, maximise moolah profit direct without decline in the quality of services rendered by Hoteliers ar becoming evolving issues in the hospitality industry.The essence of this disgorge is uncover how anxiety accounting is use to ply specialised internal information to the Managers in Lagos airdrome Hotel, Lagos Nigeria that argon responsible for poseing and throwling surgical processs within the hotels. The types of information volunteerd by catchion accounting information systems and how it help the anxiety in their strategic planning (Short or Long marginination), measurement performance, reach the organisational strategic objecti ves of increasing the owners wealth.SECTION 1-DESCRIPTION OF COMPANYLAGOS aerodromeS HOTELS LIMITEDLagos Airport Hotel Limited, is a subsidiary of Odua Investment Company,The hotel began ope balancen in 1942 under the leave behind power and focussing of Joseph Harold, a Brition . The hotel name was then Grand Hotel which was later changed Ikeja ordnance was incorporated in 1961, having started headache as an owner managed hotel with 5 populate in 1942 under the name Grand Hotel, Lagos.with 5 populate. It was renamed Ikeja Arms order in 1956 acqiured in 1959 by the Government of Western region of Nigeria comprises of Oyo, Ogun, Ondo, Osun and Ekiti States in 1959 and incorporated as Lagos Airport Hotel in 1961.As at forthwith the hotels had grown from 5 styles in 1942 to 277 agencys consist of of , presidential suites , Monarchical Suite, executive director Suites, Presidential Suites, Executive/Business Suites, Standard/Executive Double, six conference halls easy-secured car parks, both international Restaurants four interdict and an Olympic-sized Swimming Pool.The hotel under the leadership of Alhaji Adebayo Jimoh , has over five hundred highly professional staff with additional two subsidiaries hotels namely Lafia Hotel and Premier Hotel Ibadan.The hotel strategic vision is to be the preferred choice for customers in the Nigerias hospitality industry. and committee statement is to passionately deliver efficient and catering services at competitive and affordable prices. In Peat survey 2009 the Airport is rated among the best conk hotels in Nigeria and among the first leading hospitality companies in Lagos State. is rated among the best blow over 20 hotels in Nigeria.SECTION 2COST BEHAVIOUR outlineHOTEL BUSINESS OPERATION AND COST BEHAVIOUR ANALYSISHOTEL ACCOUNTING structure AND LAGOS AIRPORT HOTEL EXPERIENCEThe hotel concern ope balancen globally is characterised with a effect of different rotary gross r directue receipts enhancemen t trolls which includes daily operate cycle, every week , seasional cycle and command business cycle(Reccession). The Lagos airport hotels is non expempted from the supra cyclical business patterned. Signifi loafertly, these various cyclical ope dimensionn in hotel create a unique difficulties in pictureing revenue and identify up.Secondly , hospitality operation atomic figure 18 People lie and people- driven, it is more(prenominal) difficult to powerfully alter and control speak to than it is on other non hospitality business field2.1 COST BEHAVIOUR AND ANALYSISLagos Airport Hotel operations tend to be highly departimised with separate operating division/ unit of measurement that provide adjustment/lodging, Restaurants Bar services, Conference Banquest, Etc . Consequently the hotel accounting systems argon designed to bring home the bacon an independent evaluation of each operating department or division.To this end, cost directly traceable to a department are identified as direct cost, typically study direct cost in hotels includes cost of gross revenue(foods drinks), salary wages, operating supplies e.g Soap, Toilet tissue paper etc . After direct be are determined they are deducted from revenue to isolate causative income which re save the depts or division contribution to support undistributed general overheads.As in their practice validatory cost are non easily traceable to a department and referred to as undistributed beOne of the arguments in favour of allocating indirect expenses to department is that aithough department managers are not responsible for controlling those be, they should be aware of what portion of them is colligate to their department since this could be in possession of an impact on departmental determination fashioning such as establishing room rates, foods and other service selling prices at a direct that covers all costs not just direct cost.When this type of Full -cost accounting is implemented in a duty accounting system , it allows a manager to know the aggregate borderline revenue that mustiness be generated to cover all costs even though the control of slightly of those costs is not their responsility.Neverthe slight thither are mistake as regard the direct costs, controllable costs, indirect costs and non controllable cost. The assertion that say direct costs are generally more easily controlled than indirect costs but (Salome 2009) argued that in the presbyopic run all costs are controllable by someone at sometimes2.2 RELEVANT NON RELEVANT COST notion AND APPLICATION IN HOTELThe theory of pertinent and non relevant cost is widely utilise in hospitality cost focussing( ) the application is use for initiation of finality make.A relevant cost is one that affect ending and such a cost must be in the upcoming and different between alternatives. For example The Lagos airport is considering to introduce online booking with atmospheric state Payment portal, the relevant cost would be the cost of web solving, funds dispenser Machine, the cost of training employees on the rising solutions and any change in main(prenominal)tenance and material supply costs on the sensitive solution/machine. As long as no change is necessary in the turn of events of staff required, the hotel labor cost would not be relevant cost and it would make no difference to the closingOn cost behaviour Most hotels have a high proportion of headstrong cost which are not expected to change in the improvident run of an operating terminus og a year or less and will not vary with extends or decrease in gross revenue revenue, examples are perplexity salaries, insurance or committed cost of an advertisement campaign ,So this type of costs are not relevant for finis makingVariable cost on the hand change in direct proportion to a change in gross sales revenue for example the more foods and drink sold, the more cost of sales incurredThe advantage of relev ant cost , non relevant cost, fixed , variable, sunk cost etc in hotel business help the managers in making the following types of decision storage allocation of indirect costs to revenue unit/deptWhich types of equipment should they buyWhether to sell downstairs descend cost?Whether hotel should be close during off season? As the cost of low - legal action characterises hotel sectorsWhich investing/business should they buyMake or buy decision makingAlot moreIn the airport hotel activity -based be is not broadly utilize while target be has squat ad cream level. But standard costing is most best-selling(predicate) costing used in the hotel2.3 MANAGEMENT ACCOUNTING SYSTEM AND closing MAKING IN HOTEL A RELATIVE ILLUSTRATIVE take on OF LAGOS AIRPORT HOTELThe business success of the business depends to a very large tip upon the capacity of top solicitude to develop the appropriate strategies in a number of issues which conform to the business corporate strategic goalsThe hot els have typically diverse level of decision making. focus at each level takes decision that are within its cap force and responsibilityFor each level of decision making management accounting system has been undercoat to provide appropriates information required for management decision making.To be specific the management accounting information system was found to be helpful to the hotel management to formulate and executeStrategies concerned with volume and capacityStrategies for assessing the relative absoluteness of division/ department or revenue areaStrategies for pricing in condition of hotel space capacityStrategies for selecting product/service range where there are capacity or other constraints.Marginal costing is used by the hotels for cost structure and pricing decision. The gross profit marginal costing is in general used for short-term planning, while activity based costing is the favoured costing method for long term strategic planning.The cost -volume -profit s et out to decision (e.g Breakeven analysis) are widely produces to assist management in decision making . this assist them in evaluating current and future events regarding sales revenue influx and cost out runCost volume profit analysis(CVP) cost are separated into variable and fixed componenets. They are then used to make informed and rational decisionTABLE SHOWING Break even salesBreak even sales equitation for Loding unit for 2009(See Financal hilghlight week6 end outline)The fixed costs(FC) are N197,702 , sales revenue N568,900 and variable cost (VC) are N63,968 .what is breakeven sales revenue?The break even point(BEP)= Fixed cost(Sales revenue Variable cost)= 197,702(2053-230)BEP = 108 Rooms per day.Fig2 Break even revenueFC / 1-(variable cost/sales revenue)197702/ 1- (N63,968/N568,900)197,702/88.7% = N222,888CVP analysis is a logical extension of breakeven analysis in hotels business it is used to make the following decision among others.At what level of sales revenue wil l operating income be TARTGETD INcme may be 700,000,000How oft must sales revenue increase to cover a new fixed costIf room rates are changes, what will be the effect on rooms sold?Whether to give bulk discounts or not?New investing decisionSECTION 3BUDGETING affect REVIEWBUDGETING AND BUDGETARY PROCESS OVERVIEW IN HOTEL INDUSTRYThe objectives of organisation will be faciliatated by the implementation of an efficient budgeting, this because the whole essence of budgeting is to gibe that the allocation of resources is palnned to avoid waste and promote profitabilityFor hotel managers to make signifi dealt decision about future, a manager must look ahead(Budget) Antril. P Mclaney.E (2009)Martin Micheal (2004) argued that for hotel or restaurant operators or manger the budget might be no more than looking ahead to tomorrow, estimating how many a(prenominal) invitees per nighttime , estimating how many customers will eat in the restaurant etcBudgets not expressed in monetary te rms could involve numbers of guest to be served, number of rooms to be occupied, number of employees required, or some other unit as opposed to monetary valueAgara(2007), Martin Micheal (2004) identified the three main purposes of budgeting in hotels businessTo provide organised estimates of future unit sales, sales revenues, expenses, net income, staffing requirements or equipment needs, broken down by operating period and departmentTo provide management with long-term and short term goals.To provide a method of control so that actual results can be evaluated against budget plans and adjustments, if necessary can be madeThe budgetary cycle or process is a five part process that problematic the followsEstablish arrive atable goals or objectivePlan to achieve these goals or objectivesCompare actual results with those planned , and analyse the difference(variance)Take corrective action requiredImprove the effectiveness of budgetingThe starting point in budgeting is to forecast sale s revenue, in hotel operation in forecasting the mnager usually considered old actual sales revenue and trends, current anticipated trends and the economic, competitive and hold factors.Once the sales revenue had been forecast, direct operating expenses can be calculated based on anticipated sales level and undistributed expenses allocated or deducted to arrive at the net income.The various types of budgets include fixed, flecible, nifty budget, operating , departmental,master budget etcZero based budgeting (ZBB) this budget is found effective for controlling and controlling hotel operation, as the name implies no expenses can be budgeted for or incurred unless they are jusitified in advance. ZBB requires each department head to jusitify in advance the entire yearly budget froma zero base. The department manager responsible for the cost prepare the analysis. After each department or division is anakysed , management ranks all decision unit and the final budget is allocated accor ding to this rankingThe variance analysis is useful tools for budgetary control as it is used for isolating the cause of difference between budgeted and actual figures.SECTION 4FIRM PERFORMANCE ANALYSIS4.0 LAGOS AIRPORT HOTELS FINANCIAL pedagogy AND PERFORMANCE ANALYSISThe financial report present merely a stewardship report . if the information is to have real meaning both to the management and other users of the report, it must be subjected to a process of analysis and interpretation.To do this, various stastics yardstick or analytical tools deal ration analysis, proportional analysis, common size vertical analyisi , trend analysis/ percentage can be used.proportion analysis is concerning with expressing relationship between inputs and output, the objective of ratio analysis is to construct a framework of such relationship which are important for the success of the high society.One part of this framework bring unneurotic all these aspect of the business which contribute to pr ofitability both fot the company and owners, another part of the framework assesses the liquidity of the hotel, the remaining part invent the hotels standing or viability for the future.Table Lagos Airport Hotel financial performance Anaysis for 5 years20092008200720062005Profitability RatioGross profit Ratio or Margin63.5%46.5%51.8%68%67.6 lowest profit ratio or margin17.2%1.3%4.3%17.4%15.7%Return on Capital employed63.7%3.9%12.3%43.1%61.1%Liquidity / Investment RatioCurrent Ratio1.211.311.3411.3712.051Gearing Ratio103%91.4%91.7%93.549% center Debt to make outholder inventory193%169%171%166%156.8%Earning per share2.470.140.421.51.25CommentsGross profit ratio which indicates the gross margin on sales in a period is steadly show a sign of alter 2009 from downward slope that occurred between 2008 2007, however the gross profit ratio needs improvementThe net income ratio and return on great(p) which indicates a relative efficiency of the hotels business and general profitabili ty of the business is worrisome even with 17.3% for net return 63.7 ROCE for 2009 the performance is still out-of-the-way(prenominal) below expected returns level and it glaring that the hotel has been performance in term of profitability badly. For the hotel to remain operation for the nearest features it must be bankable and liquid. The strategy to adopt here is for the hotels managemenet to reduce its operational cost, improve revenue per guests,rates of occupany and innovate a new products or service that can improve revenue and profitability stream.The liquidity go under of the hotel is far below ratio 21 recomended for healthy company, liquidity ratio measure the ability of a firm to meet its short -term obligations and reflect short term financial strength of the firm while the gearing ratio is passing high as the company operation is funded from debts and depend on borrowed fund for expansion which is very vulerabilty to earning of shareholders and poses a possibility of take -over or bankcruptcy.The overall trend analysis for the hotel(see apendix2) provides uselful insight into some of the factors that might contributed to this aweful financial positionInterestingly, many individual operating ration are specifically acquirable for hospitality industries which focus on internal operation like rooms/ readjustment, Foods Beverage analysis and decision making. Some of these analysis includes but not limited to income per guests for each division, costs per guest by items, foods and or fortuneable cost percentage, labor cost percentage fair foods or boozing dollar/Naira by meals period and by revenue areas, seat turnover rate by meals period etcIn the rooms or lodgimg division average rate per occupied room, revenue per gettable room (REVPAR) , Occupancy percentage, annual revenue per room, labour cost percentage etcThe internal analysis of the above influenced the management decision making in term of improve sales level, directing efforts in to selling higher priced rooms rather than lower priced, increasing rate of occupancy percentage or average room rate.On the impact of success critical factor(CSF) on the financial performance, the monetary indicators, grosss operating profit per available room was usedSECTION 5 detonating device INVESTMENT ANALYSIS5.0 CAPITAL BUDGETING TECHNIQUES IN HOTEL INDUSTRYThe largest enthronement that hotel or food seervice business has to make is in the land and building (Martin Micheal 2004) . The hotels management also make frequent enthronisation decision for items such as equipment, furniture purchases and replacement. Due to elongated life time and colossal of outstanding outlays entail for capital investment, management espoused a more pragmatic approach and use appropriate capital investment control methodology to go through right capital investment decision makingThere are hazard in making capital investment, the hazards can be seldom be eliminated but there are techniques av ailable that allow the manager to reduce some of the quessworkThe Lagos Airport hotels use vengeance period and net present value, rn as a tools to guide investment decisionA Case study of capital investment decision making in Lagos Airport HotelA typical capital investment decision techniques is the Lagos airport hotel was contemplating of improve the restaurant services and planning to purchase a new type of oven and other modern kitchen apparatus. Or invest in Cinema or Casio Opertaion The hotel management is provided with two alternative investment option to choose from with their annual net cash inflows over the five -year investment period stratumOtption1- Restaurant Improvement plectrum2- New Cinema Casio mettle11,200,000630,00021,290,000870,00031,320,0001,275,00041,230,0001,725,0005615,0001,815,000The initial investment outlay of N4,950,000NPV is at 12%, Would either of them be a true investment for the hotel?Solution option 1 -Restaurant improvementNet cash flows additive net cash flowsYear 0Cost investment(4,950,000)(4,950,000)Year1Net Saving1,200,000(3,750,000) (-4,950,000 + 1,200,000)Year 2Net deliver earlier Dep1,290,000(2,460,000) (-3,750,000 +1,290,000)Year 3Net redeeming(a) before Dep1,320,000(1,140,000 ) (-2,460,000+ 1,320,000)Year4Net saving before Dep1,230,00090,000 (-1,140,000 +1,230,000)Year5Net saving before Dep615,000705,000 ( 90,000+ 615,000)Option 1 retribution period = 3 years, 11 months plus 4 daysOption 2 -New Cinema CASINO CENTRENet cash flowsCumulative net cash flowsYear 0Cost investment(4,950,000)(4,950,000)Year1Net Saving before Dep630,000(4,320,000) (-4,950,000 + 630,000)Year 2Net saving before Dep870,000(3,450,000) (-4,320,000 +870,000)Year 3Net saving before Dep1,275,000(2,175,000 ) (-3,450,000+ 1,275,000)Year4Net saving before Dep1,725,000(450,000) (-2,175,000 +1,725,000)Year5Net saving before Dep1,815,0001,365,000 ( -450,000+ 1,815,000)Option 2 Payback period = 4 years, 3 monthsThe analysis above showed option 1 hav e a shorter pay back period and logic of victimization pay back period is that projects that can recoup their cost readily are economically more attractive than those with longer payback(Antrill Mclaney 2009) so Option 1 is to be selected based on pay period methods.The major drawback o9f pay back period is that it ignore cash flow aft(prenominal) the payback period and it does not take time value of money(Effect of swelling/ interest /risk etc) into considerationNET PRESENT VALUE(NPV)Net present value methods of appraisal consider all of the costs and benefits of each investment opportunity and make a logical allowance for the timing of those costs and benefitsThe NPV is consider better among all other investment appraisal techniques because of cashflow timming recognition, uses of all relevant cash flow and meet the objective of the business which to increase owners wealthLAGOS AIRPORT HOTEL USING NPV METHODOPTION1 -Restaurant ImprovementNPVOption 2 New Cinema Casino centreT imeCash flowNNPV (12%)Cash flowNNPVYear0(4,950,000)(4,950,00)(4,950,000)(4,950,00)Year11,200,0000.89291,071,480630,000562,527Year 21,290,0000.79721,028,388870,000693,564Year 31,320,0000.7118939,5751,275,000907,545Year 41,230,0000.6355781,6651,725,0001,096,238Year 5615,0000.5066311,5591,815,000919,479-817,333-770,647Here we must ask how can management decide which option or project is acceptable, judging by NPV decision which stated thatIf the NPV is positive the project should be accepted, if it is negative the project should be rejectedIf there are two (or more) competing projects/options that have positive NPVs, the project with higher (or highest) should be selected.In this fibre of Lagos Airport hotel non of the two option is Negative and it should be rejected unless management has other non financial benefits attached with options which may still at long run contribute to the actualisation of the hotels strategic goals.SECTION 6 competitory ANALYSISCOMPETITIVE ANALYSISAs usual for business surround in the hotel industry is a highly competitvive, and Lagos Hotels Limited found itself in a such competitive based marketing segment with more than 5000 operators in the market. Significantly the hotels has the followings 7 majors/ market leaders to stand in withSheraton Hotels Tower, Pretoria Hotels, Federal Palace Hotels, Lagos Hilton Hotel, Excellence Hotel, PVC Hotels and Reassurance HotelsThe core keys advantages of competitors in Comparism with Lagos airport range from their location advantage(Most of them located in Victoria and ikoyi areas of Lagos that accommodation the major businesses in Nigeria) International Operations advantage, 21st century well designed architectural building , modern facilities luxury, Branding, high Price advantages, innovation program (Customer Loyalty Program) etcThe major advantages of Lagos airport is strategic location in the ikeja but with old building structuresNext to Lagos is Victoria Island, which takes while to g et to, about 2hrs, this is because of the amount of traffic and chaos on the roads, also some of the roads are in a bit of a mess, pot holes that can swallow you without trace. Victoria island is modern, and the Hotel Eco is very good, but costs 250 GBP per night note the Sheraton in Lagos is also modern and costs 300-350 per night, bottled water in the Eco was 4, but if you are spending 250 a night who cares, you must discover drinking water in this heat. These hotels do cost more than a London Hotel, but then there is no where else decent aside from Lagos Airport Hotel. Note the Airport Hotel was 100 per night, I booked at the desk where ther is a written price sheet on the wall, you will have to put down a security deposit but you do get this back at the end of your digest.SECTION 7 equilibrise SCORECARDAPPLICATION OF BALANCED SCORED CARD FRAMEWORK (A CASE STUDY OF LAGOS AIRPORT HOTEL)Balanced circuit card as the name suggested offers a more match view of a firms or of a m anagers performance by intergrating both financial and non financial information in a dogged fashion .This overcomes one of the obvious defects of traditional performance measurement systems which places unjustifiable emphasis on historical financial information.For long term effective and efficient performance, especially in hotel enterprise, the information related to service quality, debut of new products, service, additional supply, entrance on new market, the competitor performance and human capital relation management is vital.Goardana Mateja also empaciated the need for balanced score card application in hotel indsutry The hotels operations are oriented towards people and to that end their financial performance depends on the behaviour and adroitness of hotels employees, the development of new products and service and as the most important , guest satisfactionIn Lagos airport hotel use it to implement strategies of a change/ restructing in management programme undergo in 2009Apart from utilize it to create a link between the performance measurement indicators and hotel strategies, Management use it to communicate strategy to both managers and staff.At operational level the Balance scored card are use to align employess efforts with those reuired for successful strategic implementation However, successful implementation of a balanced scorecard is not a trivial matters especially for hotels like Lagos Airport Hotels that is Government owned which make some top management appointment political in nature. Apart from this balanced scored concept is simple but it implementation is found to be time consuming and costly task especially to hotel like Lagos Airport with weak financial resources and manpower to support the practice of this new management concept in the longrun.Table Lagos Airport Hotel Balanced scorecardHotel Management Balanced ScorecardManaging the day to day activities of a hotel can be facilitated with the help of KPIs. KPIs, on a BS C are the means to attain the end of Measuring Performance. Such tool can be used when umpteen external and internal forces have a bearing on the organiPerspectivePerformance pecuniary Perspective53.63%Customer Perspective65.56% talent29.67%Staff perspective65.78%Total Performance54.85%Scorecard includes 4 categories, 17 indicatorsStrategy tree and scorecard details PerspectiveGoal cant over(x of 10)DescriptionPerformance(%)MeasureunitTargetValuesFinancial Perspective353.63%Wage Costs as a % of total sales3It refers to wage cost as a % of total sales of the hotel.40%%0%Annual operating profit per room3It refers to annual operating profit per room available in the hotel.10000$25000Food cost as a % of food sales240%%0%% increase in labor costs220%%0%Total Performance in assortingFinancial Perspective53.63%Customer Perspective365.56%Number of positive feedbacks3It refers to number of positive feedbacks received from the customers (on a scale of 1 to 10).9Score10Number of complaints r eceived2It refers to number of complaints received from the customers regarding the services provided by hotel (on a scale of 1 to 10).3Score10Response rate3Metric is not available in trial variant1minutes1Frequent customers as a % of total customers2Metric is not available in trial version30%%100%Total Performance in groupCustomer Perspective65.56%Efficiency229.67%% of room booked through reservation channels2It refers to % of room booked through reservation channels maintained by the hotel.25%%100%Internet bookings2indicates the % of bookings received through internet services.30%%100%Room occupancy2Metric is not available in trial version60%%100%Rate of sales inquiry conversion2Metric is not available in trial version30%%60%Average length of stay2Metric is not available in trial version2days4Total Performance in groupEfficiency29.67%Staff perspective265.78%Staff turn