GROUP D
Guillermo Calderón
María Ortiz
Carolina López
Mamntouch Mochament
Question 5 TERMINUS HOTEL
Comment on the decision pattern of the management of the “Terminus” Hotel. ■ ■ ■
The Terminus Hotel offers three different types of services: spanish activities such as flamenco, restaurants and of course, accommodation. During the last few years, this hotel has experienced bad results in terms of profits and as a result, they have taken several cost decisions with the purpose of turning these unexpected high losses (losses were expected but not so high) into profits.
Several tour operators such as Pearson Travel requested a regular booking of the hotel rooms each day. The cost accounting department of the Terminus Hotel declined this initiative since the offer made by the operator was at a lower cost than what is normally charged per room. Therefore, by analyzing their fixed costs and variable costs we should see if they did a good job when rejecting the offer.
Capacity | Safe Capacity | 2009’s capacity | |
Fixed Costs (annual) | 2.500.000 € | 2.500.000 € | 2.500.000 € |
Capacity (hotel’s rooms) | 200 rooms | 195 rooms | 120 rooms (40% of total capacity) |
Fixed Costs of a room per day | (2.500.000/200 = 12.500 12.500/365 = 34) 34€ | (2.500.000/195 = 12.820 12.820/365 = 35) 35€ | (2.500.000/120 = 20.833 20.833/365 = 57) 57€ |
Variable Costs of a room per day | 25€ | 25€ | 25€ |
Total cost of a room per day | (34+25=59) 59€ | (35+25=60€) 60€ | (57+25=82€) 82€ |
PEARSON TRAVEL:
- 100 rooms a day (90€/each room)
- 10 x 90€ = 900€ daily
- 900 x 365 = 328,500€ annually
- Fixed Costs: 2,500,000€ annually
- Variable Costs: (25 x 10 x 365 = 91,250) 91,250€ annually
- Total Costs = Fixed Costs + Variable Costs (2,500,000 + 91,250 = 2,591,250) 2,591,250€ annually
IMPRESSA REISEN:
- 5 rooms a day (95€/each room)
- 5 x 95€ = 475€ daily
- 475 x 365 = 173,375€ annually
- Fixed Costs: 2,500,000€ annually
- Variable Costs: (25 x 5 x 365 = 45,625) 45,625€ annually
- Total Costs = Fixed Costs + Variable Costs (2,500,000 + 45,625 = 2,545,260) 2,545,260€ annually
As we can see in the previous analysis, the annual fixed cost for the hotel has not change throughout the three years, but the capacity of the hotel has decreased from 200 rooms to 120 rooms as the guests had also decreased. This have made that the fixed cost per room that the guests have to pay had increased, as they had to divided it between less number of rooms, still the variable cost per each room haven’t change. So, at the end the total cost per day that the clients have to pay had increased.