Decision-Making - Rydges Hotel - Case Study Example

Cost Confirmation and Decision Making A Case Study of Rydges Hotel 1. The Rydges Hotels The Rydges hotel is part of the amalgamated holdings limited. The Rydges hotels were established in the year nineteen eighty eight (1988) in Australia. It’s a dynamic chain of hotels. The hotel grew rapidly from 1988 to 1995 establishing a total of twenty six full branded and distinctly four-star hotels. The Rydges investments total includes mid hotels that mostly target corporate travelers. Its headquarters are located in Australia. Ridges have expanded to open up other hotels in foreign countries like United Kingdom, New Zealand, United Arab Emirates as well as Fiji to the south pacific. It carries much of its business in Australia. It operates more than seven thousand rooms of hotels in six countries with more than forty properties. its financial statements are merged with that of the amalgamated holdings limited as this is part it the AHL. The organizational chart of the Rydges hotel is vertical mode. The top management involves the chief executive officer, the managing directors of each hotel, the secretaries and the board of directors. The top management runs the Rydges hotels and all its chains. 2 Responsibility centers The responsibility centers in Rydges hotels include; Housekeeping Laundry service and inventory Maintenance Accounting Fire equipment and procedures The sales and marketing a) Classification Responsibility center classification Housekeeping revenue center Laundry and inventory revenue center Maintenance cost center Accounting profit center Sales and marketing revenue center Fire equipment and procedures cost center b) Reasons for classification Housekeeping has been classified as a cost center because the department incurs cost in the buying of cleaning materials The laundry and inventory has been classified as a cost center because they do not directly contribute in the generation of revenue. The maintenance responsibility has been classified in the cost center because the maintenance of the equipments and the whole maintenance incur costs of maintaining the rooms and services that will be sold to earn the hotel revenue. The maintenance involves the hotel buying some items to repair, clean and do other work of maintenance in the hotel. The accounting responsibility has been classified in the profit center in the Rydges multiple of hotels because this is where the management determine if they have made a profit or loss for the hotel. Though the persons who work in the accounting responsibility incur costs by way of salaries and wages they help in great deal of determining the performance of the company and to collect the revenues to ensure that each and every income the hotels make is accounted for and well stored. Fire equipment and procedures has been classified in the cost center as they incur costs in the buying of those equipments and the training of the staff and also remunerating the staff who are responsible for that department. The responsibility does not directly contribute to generation of revenue. Sales and marketing has been placed in the revenue center because it contributes directly and also accounts for a important role in generation of revenue by reaching potential customers, creating awareness and provide information about Rydges hotel. 3 The responsibility classifications a) Housekeeping Housekeeping is one of the departments in Rydges hotel. Housekeeping involves cleaning of the guest rooms. This is a cost center the company as it has been classified. The department incurs cost in buying the cleaning of the guest rooms and other facilities in the hotel. This attracts a lot of costs as the financial statements reveal. For example this department used costs of $523,345. This cost arose out of the buying of the buying the cleaning materials like the detergents. b) Laundry service and the inventory This is a cost center as classified by the company. The companies have outsourced these services to another company. This makes the company to pay for the laundry services. Also this department does not directly contribute to the generation of revenue. This department is in its own responsibility though they have outsourced it. This department involves the cleaning of the beddings that is the bed sheets, bed covers blankets among others c) Maintenance This responsibility is in charge of maintaining the inside (interior) and the outside (exterior) of the hotel facilities as (Haye et al 2007) put it. According to (Lockwood 2006) interior decoration will have an impact on the perception of the guests and how they enjoy on their stay to that hotel. The interior factor making a difference is the type of the furniture like the beddings, the tables, the chairs, the drawers and the cabinets. To maintain this furniture’s in high standards of their original furnishing and design is a critical work. The furniture used by Rydges hotel march with the room design and the decoration. This comes with a cost of maintaining such furniture and decoration as (haye 2005) states. This decoration enhances the elegance to the guests. The first impression lasts and good impression to the guests forms their judgment during their stay in that hotel. The maintenance used $53,763,987; this is because of the quality of the furniture’s. It should be noted that it is good to continuously maintain the interior furniture in order to keep its quality. The furniture should reflect the hotel standards that is a four star hotel should have very high quality furnishing; this will prevent guests shock in case they find it’s the other way round. d) Accounting responsibility This is where the performance of the whole hotel is determined. The staff in this responsibility center calculates how much the Rydges hotel has made in terms of profit. They use information provided and collected and calculate the performance of the hotels. It is very important to the hotel and any other organization. e) Fire equipment and procedures This department like other cost centers is cost bearing departments for Rydges hotel. Though cost bearing, it is a very important department in the company. Fire is an accident and not known when it will occur. This department is for preparing to counter such unpredictable cases. The acquisition and maintenance of fire equipments is expensive. Explaining why it is a cost center. There is no monetary value attached to a human being, this signifies that human person is very important. A hotel can also go a very huge loss in case of fire outbreak. In 1980 fire destroyed the MGM Grand hotel a 26 storey building in Las Vegas where 84 people perished to death. This is just but to mention a few cases where fire has destroyed and killed many people in hotels (Jones 2005). Rydges hotel maintains the following fire equipments and procedures emergency lighting system, automatic fire alarm system, electric fire pump, complete automatic sprinklers, smoke proof enclosures, smoke detectors, exit signs and the escape stairs as the Kansas building fire safety handbook (2006) observes. However there have been observed a fire hazard situations in that many linen and rubbish bags in the hall just next to the lift. They obstruct the block to the door of the stair case as they wait for removal. The fire equipments and procedures incur a lot of costs. Although they are a one of costs they are very expensive. There are no costs given of this responsibility. They are a regulation by the law in Australia that every organization must have workable fire equipments. These equipments are very expensive. They does not contribute directly to the generation of revenue only that they provide a safe haven for work to be done. f) Sales and Marketing The success of any business depends on how well the organization or the business is marketing its products and or services. Marketing will determine the amount of sales the organization will make. This responsibility center accounts in the contribution of the revenues that the business makes as (Jones 2005) states. Ridges have used a lot of marketing strategies to market the hotel. They use internet marketing to reach out to those people in other continents w ho want to visit one of the countries where they have a hotel. They also use the print media, the social media, the bill board’s handbooks and brochures. This responsibility generated eighty percent of the total revenues (80%). Rydges hotel made $97,343,873 in profits according to the last financial statements. Sales and marketing contributed heavily in the generation of this profit. Sales and marketing responsibility of Rydges hotel is one of the departments that are doing very well. The staffs here have gone an extra mile in marketing the hotel. 4 The sales and marketing responsibility This responsibility center incurs costs while at the same time contributing the generation of revenue. The effectiveness of the marketing used by Rydges hotel is very evident through the results of the sales. The sales are directly proportional to the marketing in this organization meaning that most of the sales of Rydges hotel emanate from its marketing strategies it employs. In marketing this hotel costs are involved. It is this costs that help in determining the performance of this responsibility center. Some of the cost that should be included in evaluating the performance of the sales and marketing manager include; a) Distribution costs. These are costs involved in the transporting goods from one place to another. At Rydges they incur distribution costs of transporting their guests from various places. This is so because they provide transport services to their guests. They get them from the airport for those from abroad (they account for the biggest part of their guests) to the hotel premises where the guests themselves have chosen. b) The telephone net work of Rydges is so wide. Rydges maintain a good telephone net work which is always active. This telephone incurs costs to maintain. c) Promotion costs. This responsibility center uses some of its funds in promotion, it uses promotion in different ways for example the costs of putting up bill boards on roads and in places where they target potential customers. The costs of airing advertisements in national televisions and in newspapers are also huge. d) Cost of sales. This also accounts in the evaluation of the manager’s in charge of this responsibility center. These sales costs must be reduced and kept as low as possible in order to maximize the profit. The costs reduce the profits the hotel makes. e) Salaries and wages of the employees in this responsibility center also account. The staffs must be remunerated well in order to motivate them to work extra well. All this costs determine how well the sales and marketing responsibility is doing its work. Rydges hotel have equipped this responsibility center with the relevant materials and funds to use. 5 How management accounting system motivates responsibility Center Managers to achieve organizational goals Management accounting system motivates responsibility managers by involving them in decision making concerning the organization. Management accounting works with budget, this budget is prepared by the managers. They motivated to implement the budget as they were part in preparing it. They will transmit important information to the top management (Maher 2000). This makes them to feel valued in the organization. They are also motivated in implementing decisions of which they participated in making. Management accounting systems provide two way communications. The responsibility managers are able to give their feedback. The feedback forms part of the input in the system, this makes them to strive more on realizing the organizational goals. The managers are well remunerated, management accounting system provide a good reward system. The reward packages comprise the intrinsic and extrinsic reward systems. Managers’ compensation is based on incentives linked to accounting performance measures, such as product cost. This motivates them to work harder to achieve the organization goals (Shields 2007). The managers may be paid by the number of units he produces, how efficient she/ he is, this will motivate them to be more efficient and produce more units. Management accounting allows for cooperation and integration between departments, there is mutual interchange which is a learning experience for responsibility managers. This leaning exchange motivates them to achieve the organizational goals. Management accounting systems creates various departments; these departments compete against each other. The managers are driven by this competitiveness to achieve the organizational goals. It motivates managers to compete for budget resources and reward. References Ahrens T., Chapman C. S., (2002) the structuration of legitimate performance measures and management: Day-to-day contests of accountability in a U.K. restaurant chain, Management Accounting Research, Vol: 13, Pages: 151 – 171. Ahrens T., Chapman C. S., (2004) Accounting for flexibility and efficiency: A field study of management control systems in a restaurant chain, Contemporary Accounting Research, Vol: 21, Pages: 271-301. Choi, S. (2005). An evaluation of a contribution-enhancement opportunity for hotels. Journal of Hospitality Tourism Research, 29(2), 223-244. Dormitory & Hotel/Motel Inspections Checklist – 06D, Kansa Buildings Fire Safety Handbook, 2006, 3rd Edition Hayes, D.; Ninemeier, J. 2007, Hotel Operations Management, 2nd edn, Prentice Hall, New Jersey 07458 Iyengar, A., & Suri, K. (2012). Customer profitability analysis an advent grade approach to revenue optimization in hotels. 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Accounting and the management of outsourcing: An empirical study in the hotel industry. Management Accounting Research, 19(2), 163-181. New South Wales Hospitals Planning Advisory Centre, Sydney Australia, July 2011 Emergency Fire Procedures, National Library of Australia Phillips, P. A. (2009). Performance measurement systems and hotels: a new conceptual framework. International Journal of Hospitality Management, 18(2), 171-182. Potter, G., Schmidgall, R. (1999) Hospitality management accounting: current problems and future opportunities, International Journal of Hospitality Management, Vol: 18, No: 4, Rydges on Bell Preston Melbourne (2012) [online]. Available website:www.rydges.com.au. Turner J. & Guiding, C. (2010). Accounting for the furniture, fittings & equipment reserve in hotels. Accounting Finance 50(4), 967-992. Wiley-Blackwell. http://freepdfdb.com/pdf/chapter-8-motivating-behavior-in-management-accounting-and-18099322.html http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&ved=0CD8QFjAD&url=http%3A%2F%2Fwww2.econ.osaka-u.ac.jp%2F~asada%2Fma8.pdf&ei=xquMUbqsCZKg7AbP3IDICg&usg=AFQjCNGDmQcntlR3YchzKJGV15STTS1LwA&sig2=KPNHVQ0ZA27lFrgh8YsK8g&bvm=bv.46340616,d.ZWU Shields, M (2007) Management accounting systems: organizational causes and individual effects. Michigan state university. Maher, W., 2000, Management accounting education at the millennium, Issues in Accounting Education 15, 335. Additional data. Rydges hotel is part of the amalgamated holdings limited. The figures are included in the financial statements of the amalgamated holdings limited. The extract of the financial statements of amalgamated holdings limited (statement of profit and loss) Continuing operations year 2012 Revenue and other income Revenue from sale of goods and rendering of services 729,789 Other revenue and income 68,065 Expenses Employee expenses 188,747 Occupancy expenses 179,665 Film hire and other film expenses 148,827 Purchases and other direct expenses 83,244 Other operating expenses Depreciation and amortization 37,350 Advertising, commissions and marketing expenses 21,427 Impairment of assets 18,228 Finance costs 2,871 Equity profit Share of net profit of equity accounted investees: Associates 5 Jointly controlled entities 40,303 Profit before tax from continuing operations 109,829 Income tax expense 30,087 Profit after tax from continuing operations 79,742 www.ahl.com.au www.amalgamatedholdingslimited.annualreport2012.au Read More