For Discussion and Submission on Thursday 16th November 2017

Case No 1. ( Overheads)

You have recently been appointed as management accountant of the Sterling hotel, an
establishment having capacity for 100 guests. The hotel is open for business for 40 weeks per
annum (seven days per week), and is well –known for its restaurant service and friendly lounge
bar.
Charges for accommodation are Rs.3000 per persons per night. The hotel occupancy percentage
is budgeted at 70%.
In the restaurant, the average expenditure on meals is Rs.1500 per person (excluding drinks) and
the target gross profit is 60 percent of sales. Any drinks ordered with restaurant meals are
supplied from the bar, which is accounted for separately. The budgeted number of restaurant
meals to be sold in the year January 01st 2017 to 31st December 2017 is 12,000.
The bar sells light meals and snacks which are supplied from the kitchen, in addition to selling
drinks via the restaurant to its own customers. The expected gross profit on bar sales (food and
drinks) is 45 percent of sales value.
The hotel functions are Accommodation, Restaurant, Bar, Kitchen services, Maintenance service,
and General administration. Costs are collected and, where possible, allocated to the different
functions of the hotel. However, it is not possible to allocate all of the costs, so some have to be
apportioned between the various function areas of the hotel which benefit from them.

The following costs have been predicted for the year ending 31st December 2017-
Rs. Rs.
Wages and Salaries-
Restaurant 12,00,000
Bar 9,00,000
Kitchen 20,00,000
Maintenance 18,00,000
General Administration 12,00,000
71,00,000

Food Purchases for Kitchen 96,00,000

Drinks Purchases for Bar 50,00,000
Rates 20,25,000
Electricity 800,000
Telephone 500,000
Insurance 460,000
Depreciation 800,000
Laundry 450,000
Maintenance Materials 300,000
Miscellaneous 300,000
The following bases of cost apportionment
are to be used-
Rates - Floor Area occupied
Accommodation 600 square meters
Restaurant 30 square meters
Bar 15 square meters
Kitchen 20 square meters
Administration 10 square meters
Electricity – To be shared on percentage basis
Accommodation 25%
Restaurant 5%
Bar 4%
Kitchen 50%k
Administra,tion 16%
Telephone cost – percentage basis
Kitchen 20%
Administration 80%
Insurance and Depreciation
Accommodation 30%
Restaurant 15%
Bar 10%
Kitchen 40%
Administration 5%
Laundry
Accommodation 90%
Restaurant 10%

Miscellaneous costs are to be treated as an administration item.

The costs of the service departments are to be apportioned as follows:-
Kitchen 75% to the Restaurant
25% to the Bar
Maintenance 50% to Accommodation
20% to kitchen
10% to Restaurant, Bar and Administration
Administration 70% to Accommodation
20% to Restaurant
10% to Maintenance
Requirements
(a) Prepare a Statement showing Allocation, Apportionment and Re-apportionment of
various costs to different functions(Accommodation, Restaurant, Bar, Kitchen services,
Maintenance service, and General administration.)
(b) Determine the budgeted profits for each of the department namely:
Accommodation, Restaurant and Bar.
(C) Calculate:-
(i) the cost per guest-night for Accommodation department
(ii) the overhead cost as a percentage of the sales value for the Bar.
(c) Explain different ways in which hotels can control and reduce overhead costs. Mention at
least three items of overheads and ways to control them.

Hotel accupancy =
Rev PAR= rev rec from available rom/available room
Avg accupancy = no of guest / no of room occupied