Manage Finance within a Budget Hotel Business

Questions: 1. How do you think this business could be divided into cost centres? Why might the organisation choose to make these divisions?2. How will budgets contribute to operational efficiency and what types of budget might be appropriate for such an organisation? Why?3. For each of the areas in the hotel, what direct and indirect costs would be applied and why must they be considered when drawing up budgets and developing financial reports?4. What financial reports might be of benefit to this establishment? Why?5. What types of waste might it be necessary to carefully monitor and control and why would this be necessary?6. Who should be responsible for collecting, inputting and recording the data that contributes to budgets and who should be responsible for monitoring budgets to determine how well performance is meeting expectations? Why?7.What types of budget deviation might occur and what should be done if deviations are identified? Answers: 1. The hotel business cost centre could be divided in guest service cost centre and restaurant cost centre. The hotel business mainly provides room service, drinks and food to its guest. Thus, segregating the cost within the guest service and restaurant could effectively help the company to distinguish in their expenses. In addition, as the cost that is required in restaurant and guest service is not relatively same segregation could help n reducing expenditure and improve its profitability. Jooste, Mothiba and Nolte (2014) mentioned that use of cost centres in hotel mainly helps in reducing the overall excess costs, which might be conducted to generate sales. 2. The small hotel like this could effectively use operating budget and cash flow budget, which could be changed in short-term to support the operational needs. In addition, the operating budget could mainly help the hotel to prepare a monthly budget to support its production activities. Lam, Yeung and Cheng (2016) stated that monthly budget is mainly prepared to compensate the ongoing financial revenue and expenditure conducted by the company. In addition, with the implementation of cash flow budget the small hotel business could identify the cash productivity, which could be used to maintain its productivity. Using operating and cash flow budget could help in reducing resource wastage, which in might improve its profitability. 3. The overall direct costs are mainly divided into direct material and labour, which is been used in the hotel. In addition, a restaurant, cafeteria, a piano bar, lounge bar and front bar has only direct costs as liquor and food served to the customers. However, the indirect costs are electricity cost, rent, salaries and other expenses incurred. Moreover, the motel complex of the hotel has direct cost on the expense, which is been conducted on rooms. The identification of indirect and direct cost mainly helps in preparing the budget, which could help in reducing the indirect ad direct (Hadjikakou, Chenoweth and Miller 2013). In addition, segregation of these might help in depicting the actual cost and financial stability of the company. 4. All the three financial report, which is balance sheet, income statement and cash flow statement might benefit to the small business. In addition, with the help of balance sheet the overall assets and liabilities of the company could be measured. This could help in depicting the operational capability of the company. In addition, the income statement might mainly help in depicting the profits or loss, which is been incurred by the company. Furthermore, the cash flow statement could help in depicting the current liquidity of the company and its ability to maintain the level of productivity. Lobo and Zhao (2013) mentioned that financial report allows hotel to take adequate decisions, which might help in improving its future scope. 5.The major waste that might be produced from the hotel is from food production. In addition, it is relativity known that 45% of the food waste might be generated from hotels, which could increase their overall expenditure. Furthermore, other waste occurs from rooms that is been used by customers. Pirani and Arafat (2014) stated that waste reduction could help in reducing cost and increasing profits of the hotel. 6. The financial planner and budget coordinator is mainly responsible for collecting and inputting the data required for preparing the budget. In addition, with the help of these collected data effectively budget is prepared. Moreover, the financial head is mainly responsible for monitoring the budget that is been implemented by the company. The financial head mainly evaluate the performance and expectation to derive the viability of budget, which is been prepared for the company. This viability detection of the budget mainly helps in depicting variances of the budget, which in turn help in identifying ability of the financial planner and budget controller (Ketema 2015). 7. There are mainly three types of deviation namely sales deviation, variable cost deviation and fixed cost deviation, which might occur in a budget. These deviations are mainly occurred if the projected values differ from actual output obtained by the company. In addition, if the deviation is incurred the company could effectively use variance analysis to evaluate the debt of deviation between actual and budgetary amount and then make adequate assumption in preparing the next budget. Furthermore, the company could also adjust the existing budget to maintain the level of productivity and attain the depicted profitability (Denison and Guo 2015). Reference: Denison, D.V. and Guo, Z., 2015. Local Government Debt Management and Budget Stabilization. InLocal Government Budget Stabilization(pp. 121-139). Springer International Publishing. Hadjikakou, M., Chenoweth, J. and Miller, G., 2013. Estimating the direct and indirect water use of tourism in the eastern Mediterranean.Journal of environmental management,114, pp.548-556. Jooste, K., Mothiba, T.M. and Nolte, A.G.W., 2014. The paradoxical effects of being a cost centre manager at a public hospital in Limpopo Province, South Africa. Ketema, M., 2015.Assessment of Budget Preparation and Utilization: Case of Addis Ababa City Administration Health Bureau(Doctoral dissertation, AAU). Lam, H.K., Yeung, A.C. and Cheng, T.E., 2016. The impact of firms social media initiatives on operational efficiency and innovativeness.Journal of Operations Management. Lobo, G.J. and Zhao, Y., 2013. Relation between audit effort and financial report misstatements: Evidence from quarterly and annual restatements.The Accounting Review,88(4), pp.1385-1412. Pirani, S.I. and Arafat, H.A., 2014. Solid waste management in the hospitality industry: A review.Journal of environmental management,146, pp.320-336.