Detailed Cost and Performance Management Report for Wyndham Hotel

This report provides a detailed analysis of cost and performance management at Wyndham Hotel Pty Ltd. It begins with an introduction to cost accounting and its importance, particularly for the hotel's new establishment. The discussion section covers cost measurement analysis, including the application of Activity-Based Costing (ABC) and the identification of cost drivers at the resource, cost object, and activity levels. The report examines areas of cost control, particularly in advertising and labor expenses, offering strategies to reduce costs. It also includes variance performance analysis, comparing actual expenses with the budgeted figures for the 2018-2019 period and identifies controllable and uncontrollable variances. The report concludes with recommendations for cost volume profit analysis and overall cost reduction strategies.

Running head: COST AND PERFORMANCE MANAGEMENT
COST AND PERFORMANCE MANAGEMENT
Name of the Student
Name of the University
Author Note:

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Cost measurement Analysis:........................................................................................................2
Areas of cost control....................................................................................................................6
Variance performance analysis....................................................................................................8
Recommendation for Cost Volume Profit analysis...................................................................11
Conclusion.....................................................................................................................................15
Reference.......................................................................................................................................16

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Introduction
Cost Accounting is an essential branch of accounting that deals with recording all the cost
that is incurred in the business, classifying and allocating current as well as prospective cost. In
the given case Wyndham Hotel Pty Ltd. which is well known for its seashore facing full-service
room has planned to open a new hotel and has decided to be proactive for any expenses arising
from the new establishment. Cost control will be an essential tool for the company to reduce cost
and increase the profit and it shall start with the budgeting process.
Discussion
Cost measurement Analysis:
A cost driver is the factors that cause a change in the activity’s cost. These drivers are a
direct cause of the cost and it affects the total cost incurred. A rational business decision can be
made if a viable costing method is applied to get the correct cost (konda et al., 2014) Total
production cost is used to determine the selling price, thus if the cost is inaccurate, the profit
forecast will be inaccurate, and the whole system of accounting will be subject to errors. So to
maintain accuracy while allocating cost to a particular production lot, it will be beneficial to
follow Activity-Based Costing (ABC). Activity-Based Costing is a technique of cost
computation that is associated with individual product or line of production in a company based
on the amount of resources consumed by each activity (Cooper, 2017). It is a moderistic
technique of imposing fixed overhead to the product, based on the quantum of activity consumed
by the product. The main ultimatum of ABC costing is to allocate fixed cost as if they were
variable. Thus the cost of each activity is apportioned to that specific product, on the basis of the
resources consumed by cost drivers (Hoozée & Hansen, 2017).

3COST AND PERFORMANCE MANAGEMENT
There are three types of drivers for allocating indirect cost which are: the resource level,
cost object level and activity level.
Resource level cost drivers: It measures the consumption of work activities on the
resources. In this the cost of the resources are assigned to an activity. This includes Salaries,
supplies and other items. The wages of permanent employee and casual employees and
superannuation are included in this and this directly effects the performance of the management.
The reason that the actual expenses are higher than the budgeted can be because of:
 Employees pay structure and skill level may create an unfavorable variance
 Expenses on newly minted employees are higher with respect to their production.
 Poor scheduling can cause overlaps and inefficiency on the part of the employees.
 Faulty product material can also be the culprit, as it can reduce the efficiency of the
employees.
 Similarly, the entrance of new employees increases the cost of superannuation.
Cost object-level driver: This driver includes all the costing which indirectly affects the cost
of the product in aggregate. This includes all the expenses other than activity and resource level
cost drivers, and such expenses include bank charges, credit card commission, website expenses,
insurance expenses and other indirect expenses which includes telephone expense, electricity
expenses and general repair and maintenances. These expenses are necessary to be incurred for
the smooth running of the business. The main reason for unfavourable balance can be lack of
planning, poor forecast done by the management, poor maintenance by the administration which
resulted in a decrease in the machinery output and increase in the cost of repair and maintenance
and other fixed expenses.

4COST AND PERFORMANCE MANAGEMENT
Activity level cost drivers: This driver includes the cost that is specific to the units, reflecting
the activities as consumed by the outputs. It measures the cost that is explicitly done on a
particular activity (Banker & Byzalov, 2014). For example, cost incurred for marketing and
customer satisfaction. The company has incurred cost on marketing, the cost incurred are on
newspaper and magazine and on marketing and promotion. While expenses incurred for
customer satisfaction are laundry/dry cleaning and Cleaning and cleaning products. The actual
expense incurred in marketing is beyond budgeted or standard anticipation. The possible reason
that has led to an increase in the cost is as follows:
1) Cost related to marketing varies from region to region; therefore, the expectation may not
be correct regarding the amount of expenditure to be incurred.
2) The unexpected high demand has led to an increase in the cost for consumer satisfaction;
therefore, expenses related to dry cleaning and laundry has increased.
3) The increase in the booking of rooms is because of expenses done on marketing and
promotion of the hotel.
4) Commission on sales are based on sales generated, so this can be another reason for an
increase in the marketing expense.
5) Increase in the marketing expense can be because of healthier competition in the market.
The important advantages of applying cost driver (Rothaermel, 2017) concept for the
company Wyndham Hotel is as follows:
1) It helps in improving the enterprise performance as many companies still use the
traditional management accounting and cost calculation method which produces an
unrealistic and flawed information.
2) Eliminating cost by identifying the elements of cost that are non-value adding activities.

5COST AND PERFORMANCE MANAGEMENT
3) Helpful in controlling cost through better calculation. Reducing the intensity, frequency
and quantity of the cost drivers the company’s activity cost can be lowered.
4) Reviewing cost periodically by understanding the cost drivers and their impact on the
cost behaviour can help to determine whether some of the resources are adjustable so that
better control can be implemented.
The cost fluctuation has been seen while the comparison of actual is done with the budgeted
figures. It is recommended to the management that to decrease the cost fluctuation; management
should avoid rushing while making decision and workload should be shared and spread across
the group so that a capable employee hands specialised task. The management should apply a
different process to all project irrespective of using one method to all the project.
However, management can analyse the current actual expenses, which shows that there is a
significant increase in the marketing and advertisement expense and it needs to be controlled
immediately. Following are the measures that can help the company to reduce marketing
expense;
 Company should be selective with new strategies and not vary with those strategies
frequently.
 The company should be aware of the hidden cost like Wi-Fi, water and other general
expense.
 Knowing the customer is the best way to reduce unnecessary cost. This cost can be
reduced by advertising and marketing products only to similar segment customers i.e. the
company should target the right customers
 Using free tools is another way to reduce expense, and thanks to modern technology as
there are dozens of free tools to market the rooms of the hotels.

6COST AND PERFORMANCE MANAGEMENT
Areas of cost control
The process of searching a better and more economical way of finishing the project and
various operation by the management is known as cost control. It refers to eliminating the waste
that exists within the environment (Cengiz & Cengiz, 2015). Cost control aims at achieving the
sales as made in the target by setting standards and adhering those standards. In order to achieve
the goal of profit maximisation, it is necessary for the firm aim at minimising cost, such a
decision is taken and managed by the business executive upon whom the success of the
management depends. This cost can be controlled by techiques which will be described in the
later half of this topic (Akeem, 2017). The areas of cost controlling are in the advertisements and
labour expense.
Labour expenses can be reviewed by the management and by taking the following steps, it
can reduce the expenses (Welbourne et al., 2015):
 Reducing the turnover of the employee will decrease the amount of unnecessary expense
incurred on the employee. There will be a higher cost on employees if the management is
engaged in training and recruiting new employees. By maintaining a stable employee
core, employees will not view their time as a temporary one, and this will help in
minimising higher waste, poor quality and longer production times.
 Converting fixed salaries and wages into fees or commission, the company will be able to
reduce cost and these expenses are required to be paid only when there is sufficient
revenue.
 In most of the communities, skilled peoples prefer to work as a part-time employee, and
the company can effectively utilise their experience when the workload is less or during
lean seasons.

7COST AND PERFORMANCE MANAGEMENT
 Reducing the working hours and extending the number of days of work will be welcomed
by the employee who seeks to spend their time with the families. For example, going for
a four day in a week by working 10 hours a day and shifting it to 5 days and making it
like 8 hours a day will be welcomed by most of the employees. This will increase the
efficiency and reduce the cost of the company.
Advertising cost are a bitter pill for an organisation or firm to swallow, though it provides
exposure to the business and its products and services (Modig & Colliander, 2014).
Advertisement expenses also require management attention, and by taking the following steps,
management can reduce the expense of advertisement:
 By developing a focused advertising program and resisting the temptation to advertise
from every salesperson will decrease the cost. A focused advertising program should
reflect the goals of the business and focus on specific annual events.
 Piggybacking our ads on another ads or allowing others to piggyback on our ads will
automatically reduce the cost to half (Li et al., 2017).
 Reducing the frequency of the ads. Measurement of advertisement is done in two
ways: Reach and Frequency. So management should make a decision carefully as to
whether the product requires coverage or frequency of the ads to a similar category of
groups. Targeting the right audience is vital.
 Public relation is free of cost which can be used instead of advertisement because a
better exposure in the local market will help the company to get a better response
from the surrounding environment (Smith, 2017).
 Referrals are one of the key but slowest methods of expansion. But word-of-mouth
advertisement works better and is a cheaper alternative.

8COST AND PERFORMANCE MANAGEMENT
Cost control emphasis on the past as well as present and it is applied to things which have
standards (Rajagopal et al., 2015) Being a preventive function, cost control has the following
advantages to the company:
 The firm will be able to improve its profitability and competitiveness
 Profits will be reduced significantly despite increasing revenue, in the absence of cost
control.
 It is impossible to achieve greater productivity.
 Prices of the product will reduce if there is cost control, which will result in increasing
demand for the products.
 With higher sales, higher is the employment of the workforce.
Variance performance analysis
Variance refers to the difference between the actual budget and the standard budget (Sponem
& Lambert, 2016). It is a quantitative investigation of the actual expenses incurred with that of
the budgeted expenditure. Variance can be of two types (Bogsnes, 2016):
 Controllable Variance: These are the variance which can be controlled by the company
by taking necessary actions. Internal factors guide these.
 Uncontrollable Variance: These are the variance which is beyond the control of the hotel
and the variation is because of the forces guided by the external environment.
Given Below is the amount of variance when Actual year expenses are compared with the
Standard or Budgeted of the Wyndham Hotel Pty Ltd
CURRENT BUDGETED VarianceYEAR/ACTUAL YEAR
2018-2019 2018-2019 2018-2019

9COST AND PERFORMANCE MANAGEMENT
Income
Rooms sales $219,375 $170,625 $48,750
total income $219,375 $170,625 $48,750
Expenses
Bank charges $1,125 $613 -$513
Credit card commission $1,645 $1,280 -$366
Business insurance $1,925 $1,348 -$578
Marketing & Promotional $6,250 $3,063
-$3,188
Newspapers & magazines
for customers $1,800 $1,050
-$750
Laundry/dry cleaning $1,663 $788
-$875
Cleaning & cleaning
products $2,475 $1,400
-$1,075
Website Expenses $4,438 $3,106 -$1,331
Permanent employees wages $77,500 $54,250 -$23,250
Casual employee wages $43,750 $27,125 -$16,625
Superannuation $11,519 $7,731 -$3,788
Electricity/Gas $15,500 $10,150 -$5,350
Telephones $1,800 $1,260 -$540
Property Insurance $1,400 $980 -$420
General Repair &
maintenance $5,250 $2,625 -$2,625
Waste removal charges $1,650 $1,155 -$495
Water charges $15,000 $9,800 -$5,200
Total Expenses $194,689 $127,722 -$66,968
Month Net Profit / (Loss) $24,686 $42,903 -$18,217

10COST AND PERFORMANCE MANAGEMENT
The company has seen favourable variance when the actual sales or revenue is considered
to be higher than the standard sales and unfavourable when the actual sales is lower the the
budgeted sales (de Lautour, 2018). The reasons for the change being favorable can be higher
bookings for rooms has been received during the year which is more than expected or budgeted
by the hotel management . Another reason can be that bookings have been received irrespective
of the rate of discount given by the company.
The variance concerning the expenses is unfavourable i.e. the expenses incurred by the
company in actual is more than budgeted (Bucci, 2014). It hampers the profit of the company
and similar is the case with the Wyndham hotel, as the monthly profit is unfavourable for the
company since it is below than the budgeted profit. There is various reason for unfavourable
variance and some of them can be:
 Reasons for overhead volume variance (Farkas, Kersting & Stephens, 2016):
 Change in the number of the workforce employed, increase in the number of
shifts or machine used.
 Inefficient planning leads to loss of the working hours.
 Variation in the efficiency of machines and labour
 Reasons for overhead expense variance:
 Due to Seasonal condition.
 Standards are set improperly.
 Increased cost in some external services
 Improper use of the available facility.
The variance being unfavorable because the company didn’t expect this rise in booking
of the rooms. This unexpected rise can be because of the seasonal time when the demand is at its

11COST AND PERFORMANCE MANAGEMENT
peak i.e. when the booking comes in large numbers and sometimes beyond the expectation of the
company (Abubakar & Stephen, 2018). Therefore, predetermined expenses are way below the
actual expenses and despite having favourable balance in the revenue of the company ultimately
gains profit which is below the budgeted profit of the Wyndham Hotel Pty Ltd.
Recommendation for Cost Volume Profit analysis
Cost Volume Profit analysis also known as a break-even analysis, looks to determine the
break-even point for various sales volume and cost structure, which will help the management to
make short term economical decision (Punniyamoorthy, 2017). It is basically the analysis of
three variables viz. cost, volume and profit. Such study discovers the relationship existing
amongst cost, revenue and resulting profit. If the price of a product varies than it will also impact
the profit on the product. The objective of CVP (Osazevbaru, 2014) is:
 Forecasting of profit.
 Evaluation of performance
 Setting up Flexible Budget
 Formulating price policies
 Helps in evaluating an increase in overheads.
While using CVP, following assumptions is required to be made:
 Operating expense can be classified as fixed and variable.
 Selling price is constant at all sale volume
 Constant factor pricing
 No change in efficiency and productivity.

12COST AND PERFORMANCE MANAGEMENT
 The volume of production is equal to the amount of sales.
A breakeven point is a financial tool that helps to determine the stage at which the
company will cover the fixed cost by selling the products and beyond the sale of which the
company will start earning profits (Crowder & Reganold, 2015). It is a point at which the total
cost is equal to the total revenue. To calculate breakeven point, it is necessary to calculate the
fixed cost and variable cost and after that, calculate the amount of contribution. The complete
calculation has been shown below:
Calculation of Variable Cost
Particulars Amount
Credit card commission $1,645
Marketing and promotional $6,250
Newspaper and magazines $1,800
Casual Employee wages $43,750
Cleaning and Cleaning products $2,475
Total variable cost $55,920
Calculation of Fixed Cost.
Particulars Amount
Bank charges $1,125
Superannuation $11,519
Business Insurance $1,925
Website expense $4,438
Permanent Employee Wages $77,500
Electricity/ Gas $15,500
Laundary and dry cleaning $1,163
Telephone $1,800
Water Charges $15,000
General repair and maintenance $5,250
Waste removal charges $1,650
Property insurance $1,400
Total fixed cost $ 1,38,270

13COST AND PERFORMANCE MANAGEMENT
Calculation of Break Even Sales volume Amount
Contribution per unit(Sale price p.u- variable cost p.u) $503
Fixed cost $1,38,270
Break even point (Fixed cost/contribution per unit) $275
Working note:
Selling price per unit = 219375/325 $675
variable cost per unit = 55920/325 $172
Contribution per unit $503
Calculation of Breakeven value Amount
Fixed cost 138270
Profit Volume Ratio (PV) 0.75
Breakeven value (F.C/P.V ratio) 184360
Working Note:
Profit Volume ratio (Contribution/ Sales) 0.75
Contribution (Sales-Variable Cost) 163455
The above calculation has been made after the following assumptions:
 Laundry and dry cleaning, superannuation and waste removal charges have been assumed
as a fixed expense and it is expected to occur every year irrespective of the amount of
revenue from the sale.
 While credit card commission and cleaning and cleaning products have been assumed as
variable products, it varies as per the bookings of the hotel.

14COST AND PERFORMANCE MANAGEMENT
From the above calculation, it can be analysed that the hotel will start earning profit after
every booking beyond 275th room booking. It means that on the reservation of the 276th room, the
hotel will make a profit on the entire amount received for the booking. Breakeven sales value
$184360, i.e. at this point of revenue the total cost can be recovered and the hotel will be at no
profit and no loss situation. Breakeven analysis helps the company to determine the number of
units that is required to be produced and sold in order to avoid losses. The breakeven calculation
will help to determine the variable cost and fixed cost along with the selling price (Batkovskiy et
al., 2017). Break-even charts helps in setting targets and useful for budgeting process, since the
business knows exactly the amount of products to be sold and produced. It also helps in
motivating employees as the clearly shows the employees the amount of profit at various points
of sale (Palia, 2014). Therefore it is important for Wyndham Hotel to analyise its breakeven
point in units as well as in value, so that it helps the company in setting standards and budgeting
process which will also reduce the variation comparatively.
Conclusion
The performance in this segment of the report signifies the importance of cost control and
the role of various drivers effecting the management expenses. The Hotel Wyndham Pty Ltd
needs to evaluate various expenses and consider on the expenses which can be controlled by the
company and accordingly reduce the amount of expenses. The recommendation for the same has
been made along with the analysis of the break-even point in terms of value and units which will
help the company, management and employees to know the minimum amount of sales or
booking that is required to be made so that total cost can be recovered and beyond the sale of
which the company will earn profit and which will also help in motivating the employees.

15COST AND PERFORMANCE MANAGEMENT
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