BIZ201 Accounting for Decision Making: Capital Budgeting Analysis

This case study assesses Crystal Hotel's investment decisions, focusing on the sales and marketing department and the functions and event department. The sales and marketing department evaluates the options of buying versus renting equipment for a wellness center project, concluding that renting is more cost-effective. For promotional activities, a budget of $14,800 is allocated across various advertising channels. The functions and event department analyzes options for enhancing the hotel lobby with plantation work, comparing recruiting a specialized organization to hiring a gardener, recommending the rental option for cost minimization. The analysis uses costing and capital budgeting techniques to advise the hotel's management on optimal financial strategies. Desklib provides students with access to a wealth of solved assignments and past papers.

Running head: ACCOUNTING FOR DECISION MAKING
Accounting for Decision Making
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1ACCOUNTING FOR DECISION MAKING
Table of Contents
Sales and Marketing Department Assessment:................................................................................2
Task 1:.........................................................................................................................................2
Task 3:.........................................................................................................................................4
Functions and Event Department Assessment:................................................................................5
Task 1:.........................................................................................................................................5
References:......................................................................................................................................8

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Sales and Marketing Department Assessment:
Task 1:
It is identified from the provided information that Crystal Hotel intends to develop a
Wellness Centre Project for creating a small gym on the roof of the hotel. Certain equipment is
needed for fulfilling this plan. However, the problem for the hotel is to choose between purchase
option and rent option. As cited by Kaplan and Atkinson (2015), in order to undertake this
decision, it is necessary for the hotel to consider manufacturing costs as well as its capacity of
hiring at the needed levels. Thus, the hotel needs to analyse the two alternatives depending on the
given information based on which the alternative could be selected and it should be desirable in
terms of cost. The table below is prepared to assess the costs related to the two options:
Buy option:
It is apparent from the above table that Crystal Hotel has to buy four kinds of equipment
in order to design the Wellness Centre Project successfully for buy option. In this case, an
amount of $46,288 would have to be incurred. It covers additional servicing cost of $600 per
annum for three years for an equipment to carry out the project and its maintenance. However, it
could gain a part of the amount as residual value of 5% of the cost of acquisition, which is

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estimated to be fetched at the end of project life. The alternative could lead to a number of
benefits for Crystal Hotel, which are described as follows:
 The primary advantage is that the management of Crystal Hotel would hold the
equipment rights and it need not have to pay any rent and hence, the total cost would be
minimised.
 As the equipment would stay in the hands of the hotel even after the project completion,
the same could be used for future projects as well (Nielsen, Mitchell & Nørreklit, 2015).
However, this alternative suffers from certain drawbacks, which are listed as follows:
 The hotel has to bear cost of $46,288, which exceeds the budgeted equipment amount of
$45,550.
 Moreover, an additional servicing cost of $600 per annum needs to be incurred, as
avoiding the same would lead to economic life reduction. Therefore, this again leads to
drainage of additional cost for the hotel.
Rent option:
The desired equipment could be rented either monthly, quarterly or annually by Crystal
Hotel. However, it has been analysed that yearly rent would help in minimising the overall cost
and thus, an assumption is made that the annual rent would be considered by the hotel. It has
been found that the hotel has to bear $35,683, if it chooses the renting option. The main benefits
that the hotel could enjoy by adopting this option include the following:
 Crystal Hotel could minimise its total cost by renting equipment rather than purchasing
the same.

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 This option does not need the hotel to spend servicing costs differently and hence, there
would be no additional cash drainage (McVay, Kennedy & Fullerton, 2016).
The only drawback associated with this option is that the equipment is not owned by the
hotel and therefore, the management would not have any control over the same.
After critical assessment of the two provided options, the management of Crystal Hotel is
advised to select the rent option. This is because it would help the hotel in saving additional costs
in comparison to the buy option. Additionally, there would be increased revenues and therefore,
the rent option is deemed to be suitable for the hotel.
Task 3:
It has been identified from the provided information that for additional promotional
activities, the budget allotted is $14,800. Therefore, the above-listed items are selected in

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appropriate quantities so as to promotional activities within the provided budget. The quarter
page strip is selected, as it assists the readers in keeping their eyes concentrated on a single
sentence for controlling visual field (Lev & Gu, 2016). Digital foyers, on the other hand, would
assist the management of Crystal Hotel in earning better return on marketing investments. By
using bus shelter posters, the hotel could be able to locate its bench advertisements at the street
level, which makes the same ideal for advertisement to pedestrians and drivers in urban areas.
By choosing digital billboard, the management of the hotel could experience an increase
in brand visibility along with creating awareness among the customers via customer experience
(Noreen, Brewer & Garrison, 2014). With the help of printed advertising, there would be
increased frequency of customer exposure, strong visual effects along with developing company
reputation and brand image. Finally, two-sided A6 flyers would help Crystal Hotel in saving on
its advertising budget, since not too much expense is associated with flyers.
Functions and Event Department Assessment:
Task 1:
After critical assessment of the provided information, it has been identified that the goal
of the management is to increase the hotel attractiveness through a refurbishment project. The
intention is to increase plantation work in the hotel lobby so as to enhance its beauty in order to
draw the attention of the customers. It has two options available for the project. The first option
is to recruit a specialised organisation for providing and maintaining the plants, while the second
option involves buying the plants and recruiting a gardener to look after the plants. The
evaluation of the two above-stated options is represented in the form of a table as follows:

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Buy option:
Based on this option, Crystal Hotel has to bear cost only once for purchasing the plants to
be put within the lobby of the hotel premises. In addition, for plant maintenance the hotel is
required to recruit a gardener for effective plant maintenance. If this option is selected, the hotel
has to bear cost of $39,591 over three-year period. By choosing this option, the management of
the hotel would enjoy complete rights over the plants and it is possible to change the plants and
styles of arrangements based on its preferences. However, Crystal Hotel needs to bear additional
cost by selecting this option, since a gardener is to be appointed for maintenance purpose
(Collier, 2015).
Rent option:
For this option, the hotel is required to recruit a specialised organisation so that the plants
in the lobby of the hotel could be managed effectively. As a result, the appointed organisation
would charge a specific amount from the hotel. By selecting this option, there would be
significant increase in plantation work due to the involvement of a specialised organisation
(Fields, 2016). Moreover, lower cost would be incurred in this option than the buy option, which

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would result in additional revenue. However, no rights would be enjoyed by the management of
the hotel on the plants (Kim, Schmidgall & Damitio, 2017). By accepting this option, Crystal
Hotel has to pay $35,317.
From the above discussion, the management of the hotel is recommended to select the
rent option. This is because there would be minimisation in cost leading to rise in profit. The
objective of the hotel is to minimise business expenses that signify the viability of the rent option
to be chosen.

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References:
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Fields, E. (2016). The essentials of finance and accounting for nonfinancial managers. Amacom.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Kim, M., Schmidgall, R. S., & Damitio, J. W. (2017). Key managerial accounting skills for
lodging industry managers: The third phase of a repeated cross-sectional
study. International Journal of Hospitality & Tourism Administration, 18(1), 23-40.
Lev, B., & Gu, F. (2016). The end of accounting and the path forward for investors and
managers. John Wiley & Sons.
McVay, G., Kennedy, F., & Fullerton, R. (2016). Accounting in the lean enterprise: providing
simple, practical, and decision-relevant information. Productivity Press.
Nielsen, L. B., Mitchell, F., & Nørreklit, H. (2015, March). Management accounting and
decision making: Two case studies of outsourcing. In Accounting Forum, 39(1) pp.64-82.
Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2014). Managerial accounting for managers.
New York: McGraw-Hill/Irwin.