Cost and Performance Management of Tourism and Hospitality Report

This report provides a detailed analysis of cost and performance management within the context of the tourism and hospitality industry, specifically focusing on the case of Sunshine Continental Hotel Pty Limited. The report begins with an introduction to the subject matter, followed by a discussion that includes cost measurement analysis, identifying key cost drivers and their impact on the business. It then delves into identifying areas of cost control, examining both fixed and variable costs, and provides recommendations for cost reduction strategies, such as employee sharing and marketing cost optimization. The report also includes a variance performance analysis to identify deviations in costs, and concludes with recommendations for cost-volume-profit analysis to determine break-even points and optimize revenue generation. The analysis utilizes various management accounting techniques to evaluate the hotel's performance and provides strategic insights for future financial management.

Running head: COST AND PERFORMANCE MANAGEMENT OF TOURISM AND
HOSPITALITY
Cost and Performance Management for Tourism and Hospitality
Name of the Student
Name of the University
Author Note

1
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Cost measurement analysis:.......................................................................................................2
Identifying Area of cost control:................................................................................................5
Variance performance analysis:.................................................................................................8
Recommendation for cost volume profit analysis:...................................................................10
Conclusion:..............................................................................................................................13
References list:.........................................................................................................................14

2
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
Introduction:
The report is prepared to analyze and evaluate the performance of cost control areas
of the Sun Shine Continental Pty Limited. Analysis of the facts is based on the case study
provided when different management accounting techniques such as performance variance
and cost volume profit analysis has been done. Variance performance analysis has been done
to identify the factors with the most deviation and that has the contribution in the cost. In
addition to this, cost volume profit analysis has been done to evaluate to determine the break
even units so that the total revenue generated is equivalent to the total cost.
Discussion:
Cost measurement analysis:
As it is seen form the case study that Sunshine Continental Hotel Pty Ltd. is planning
to open a new hotel, the owner Ben is concerned about the Cost management. Thus, in this
report all the management cost drivers are being evaluated that will help to measure the
performance of the cost control, which will help in cost management for opening of the new
hotel.
The cost driver is a factor which is dependent on the activity, where the cost can be
increase or decrease based on the activity. It mainly affects the business operations because
the cost driver mainly decides the expenses. Thus, the activities of the business are usually
influenced by cost driver. It does have an effect on the activities which is mainly long term.
Strategically, it does change the allocation of the costs. In case of the effects of the cost
driver, it does measures the activity based on the resources consumption. The cost drivers are
mainly needed for the indirect costs.

3
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
The cost driver can be classified into two categories:
i. Activity Cost Driver
ii. Resource Cost Driver
In the Activity Cost Driver, it is mainly based on the activities or the operations of the
organization. It is mainly based on the cost objects in relation to the activities like the sales
and production. The cost objects which is related to the activities can be products which is
being manufactured, the orders that the company are getting, execution of the workforce.
There is an interrelation between the products, activities and resources. The products are
made based on the activities, and after that the resources is used in the activities for the
production.
In Resource Cost drivers, the resource allocation is being done based on the activities.
This allocation has been done as per the requirements of the activities. The resource
allocation is being done as per the requirements of the organization. For earning more
revenue, the company has to properly allocate the resources so that there should be no
production issue and there should be a flow is the production process. So, the resource cost
driver helps in the allocation of the resources related to human.
From the Profit & Loss Statement of the Sunshine Continental hotel it is seen that the
main expenditure of the hotel is on the wages for the employees. There are two types of the
employees, permanent and casual. As in the hotel there are different departments, there can
be a benefit for the organization that through employee sharing. It can be usual for the
employees to work in different areas of the same organization. It will help the organization in
the cost control as a single employee can perform different tasks. The human resource
department should take care of this organizational problem, it will also help the organization
in earning more revenue. The staffs should be specialized in their individual area, and it can

4
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
happen that they can perform multiple tasks equally. In the hotel, the task of the service
providers is similar, there is less segregation of the tasks which can be provided by the same
employee. Thus, it will help the organization in an efficient way, and through this it is an
efficient way to manage the employee costs. It will be beneficial for the Sunshine Continental
Hotel Pty Ltd. at the time of opening a new hotel, as the expense on the staffs will be less.
Most of the expenses are done after the allocation of the activities, in this case of
marketing the key drivers which will help in the performance of the cost control is Brand
Value, Consumer support, Website expenses. The Sunshine Continental Hotel Pty Ltd. is
spending more in the marketing and promotional activities. As the hotel is well known for its
location because of the sea shore facing rooms it gets recognized easily. So, the expense
which is being done for the building a brand value, there is no requirement of it. The cost
cutting can be done in the marketing as the brand image is there for the hotel. From the report
it is seen that the budgeted cost was $1750 and the actual expense that the company has made
is $2500. There is a significant increase of the expenses which was projected by the
company. Thus, the company should spend less amount on the marketing and promotional
activities as they have a good brand image and reputation in the market. As there is a
goodwill associated with the company, Sunshine Continental Hotel Pty Ltd. will have an
advantage when they will open a new branch.
Form the above analysis it can be recommend that, the cost drivers that is used for
measuring the performance of the cost control are the Activity Cost driver and the Resource
Cost driver. As Sunshine Continental Hotel Pty Ltd. is the service provider of the hotel
services and accommodation, it deals with the consumers. Thus, the implementation of the
cost driver in this case will be the Resource Cost Driver. In Sunshine Continental Hotel Pty
Ltd., the main effect of the cost allocation is in the payment of the wages for the staffs. This
can be controlled by distributing the work of various department with the particular group of

5
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
employees. Thus, the employee can do multiple tasks regardless of the department. Another
cost driver which will help the company for the cost control is in the marketing and
promotional activities.
Form the case study it is seen that Sunshine Continental Hotel Pty Ltd. is ahead of the
competition as it has seashore facing rooms. All the room have the same features, this is an
advantage which the hotel poses, because of this it is ahead of the competition. Therefore, the
company should not overspend on the marketing and the promotional activities because it
already has a good market presence. In the financial statement, it is seen that the budgeted
expense of the marketing and promotional activities was exceeded and the actual expenses
was lot more than the budgeted.
Identifying Area of cost control:

6
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
The above table depicts elements of total costs of Sunshine Continental Hotel Pty
limited which is known for their sea shore facing serviced rooms. Total cost incurred by the
hotel in proving service comprised of fixed and variable cost. Hotel is concerned about the
rising expenses because of the planning of the establishment of new hotel. The factors
affecting the value perception of the industry is evaluated using the technique of cost
management. In light of the opening of new hotel, it is required to assess the cost drivers and
how such drivers impact the performance of the hotel.
The cost control areas of Sunshine continental Pty ltd can be evaluated by looking at
the elements of both the fixed and variable cost. Firstly, looking at the components of
variable cost, it can be observed that the maximum amount of cost is incurred by the hotel in
making wage payment to their casual employees. Total amount of cost incurred in making
payment to their casual employees stood at $ 17500. This is followed by the cost incurred or
the charges for electricity supplies and gas at the amount of $ 6200 and water charges at $
6000. Moreover, looking at the components of fixed cost, it can be observed that the highest
amount of cost is incurred by the hotel in making payment to their permanent employees in
the form of wages. For superannuation, total amount incurred by the company is $ 4608 and
amount of $ 2500 incurred on the marketing and promotional. Hotel is also incurring
expenses on the general repair and maintenance and on website expenses (Granlund &
Lukka, 2017). Therefore, the cost control areas of Sunshine Continental Pty Limited is related
to the wages paid to the casual employees, wages paid to permanent employees and expenses
incurred on superannuation. In addition to this, cost incurred on the water supply and
electricity and gas supplies can also be regarded as area of cost control.
From the figure, it is inferred that the cost control areas for Sunshine Continental Pty
Limited is mainly related to wages paid to their permanent and casual employees.
Furthermore, another cost control areas in relation to the variable cost is electricity and gas

7
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
charge along with the charge for water supplies. It is required by the business to gain an in
depth understanding of the behavior and trends of the concerned cost and reducing them to a
lower level for the seamless operations. The first and foremost task of the hotel business for
tracing the cost control areas is the identification of inefficiencies. It is essential for the
business to look for ways that would help in making the operations more efficient. Wastage
in time and working process can be reduced by tightening up the procedures and process.
Employees should be encouraged to identify the inefficiencies and it is the responsibility of
the management to deal with such inefficiency for reducing the cost to a lower level.
Some of the recommendations to Sunshine Continental Pty Ltd for controlling the
cost control areas in future are listed below:
 Wages can be regarded as operating cost incurred by the organization and the area of
fixed wages paid to permanent employee can be addressed by converting fixed wages
into fees or commission. The cost can be converted into an expense that is paid only
when it is accompanied by the revenue. For instance, the installer might accept work
as contract laborer and only when work is available. In addition to this, cost in the
form of wages can be reduced by sharing of jobs between the employees. It is so
because this will help in reducing the administrative cost when the full time
employees are replaced with part time employees without causing any reduction in the
number of hours worked available (Malmi, 2016).
 In most of the communities, many of the skilled workers limit to working for part
time. Instead of making such workers full time, the resources can be utilized when
there arises the needs of the same and the two part time employees can share the full
time employees.
 As the company expands and grows, they become involved in the group of
interdependent department and this results in the elimination of flow of inter

8
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
departmental communications. In many situations, same task is repeated between
various departments and there is a possibility that the expansion of business by
opening new hotel would cause to create redundancy. This would have an ultimate
impact on increasing the cost and hence it is required by the business to periodically
review the process of fund handling, order handling, directing installations for
ensuring that there is minimum amount of redundancy between the departments
(Chenhall & Moers, 2015).
Variance performance analysis:
Variance analysis is about conducting an analysis of the deviations of the actual
behavior or the actual cost incurred versus the budgeted planning or budgeted cost. That is
variance is the difference between the budgeted and actual amount and variance analysis is
the process of identification and explanation of the reasons for the deviation and its
associated outcome. The actual performance results of Sunshine hotel such as revenue,
expenses and the income earned is compared with the budgeted figures of the same and this
helps in the determination of specific metrics measuring the performance. In the hotel
industry, the metrics for measuring the performance include average daily room rate,
occupancy percentage and revenue per available room. For the variance analysis, it is
required to look at the aggregate numbers such as total occupancy and total revenues
(Merchant & White, 2017). The variance analysis for determining the performance of
Sunshine Continental Pty Ltd is presented in the table below:

9
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
Particulars Actual
Figures
Budgeted
Figures Variances Percentage
Variance
Income:
Rooms sales 87,750$ 97,500$ (9,750.00) -10.00%
Total income 87,750$ 97,500$ (9,750.00) -10.00%
Expenses:
Bank charges 450$ 350$ (100.00) -28.57%
Credit card commission 658$ 731$ 73.12 10.00%
Business insurance 770$ 770$ 0.00 0.00%
Marketing & Promotional 2,500$ 1,750$ (750.00) -42.86%
Newspapers & magazines for
customers
720$ 600$ (120.00) -20.00%
Laundry/dry cleaning 665$ 450$ (215.00) -47.78%
Cleaning & cleaning products 990$ 800$ (190.00) -23.75%
Website Expenses 1,775$ 1,775$ 0.00 0.00%
Permanent employees wages 31,000$ 31,000$ 0.00 0.00%
Casual employee wages 17,500$ 15,500$ (2,000.00) -12.90%
Superannuation 4,608$ 4,418$ (190.00) -4.30%
Electricity/Gas 6,200$ 5,800$ (400.00) -6.90%
Telephones 720$ 720$ 0.00 0.00%
Property Insurance 560$ 560$ 0.00 0.00%
General Repair & maintenance 2,100$ 1,500$ (600.00) -40.00%
Waste removal charges 660$ 660$ 0.00 0.00%
Water charges 6,000$ 5,600$ (400.00) -7.14%
Total Expenses 77,876$ 72,984$ (4,891.88) -6.70%
Month Net Profit / (Loss) 9,874$ 24,516$ 14,641.87 59.72%
The table presents the deviation between the actual and budgeted figures of income
earned and expenses incurred by Sunshine Continental Pty ltd. It can be observed from above
table that the budgeted figure for the total income is $ 97500 compared to actual income
earned by the hotel which is $ 87750. The figures suggest that the hotel is not earning
favorable income as the actual income earned is less than what had been budgeted. This
reflects a variance of 9750 indicating 10% deviation of the actual value from budgeted.
However, such variance is not favorable as less amount of income is actually earned.
Now, looking at the figures of expenses, it is observed that the actual amount of total
expenses incurred by the hotel is considerably more than the budgeted figures. The budgeted

10
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
expenses set by the hotel is set at $ 72984 and the actual amount of expenses that have been
incurred is recorded at $ 77876. This has the implication that the expenses of the company is
witnessing an unfavorable variance. The percentage of variance of total expenses is coming at
-6.7% and it is suggested by the figure that the expenses incurred is not desirable.
Furthermore, it would be suitable if each of the components of expenses can be evaluated for
identifying the factor that is contributing to increasing expenses and making it go beyond the
budgeted figure. Greater percentage of variation can be observed in the component such as
wages paid to casual employees, marketing and promotional expenses, general repair and
maintenance followed by water charges, electricity and gas charges (Alsharari et al. 2015). In
addition to this, expenses incurred on superannuation, cleaning products, laundry cleaning
and newspaper and magazines has also contributed to increasing expense and making it
beyond budgeted figures.
Therefore, from the analysis of the variance figures, it is inferred that the position of
Sunshine in terms of expense and the income earned is not favorable. This so because the
actual cost or expenses incurred is more than the budgeted figures and the actual income
earned is less than the figures in the budgetary planning.
Recommendation for cost volume profit analysis:
Cost volume analysis is a powerful decision making and planning tool that estimates
how the changes in the sales volume, price and cost impacts the profitability of the company.
It is an analytical tool that helps in studying the relationship between cost, prices, revenue
and profits. Such analysis forms an integral part of the process of planning of the firm. This
particular analysis is the most widely used and versatile tool used for decision making by the
managerial accountants. However, such control and profit planning tool involve the use of
forecast and budgets and thereby helps in providing an overview of the process of profit

11
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
planning. Some of the important benchmarks such as determining the breakeven is done by
cost volume analysis where the total costs incurred equates the total revenue generated by the
business. The term expense and cost in the cost volume analysis are used interchangeably and
the economics of breakeven analysis is the conceptual foundation in such analysis. It is
required by the organization to organize their cost into variable and fixed components for
conducting the cost volume analysis (Eldenburg et al. 2019). Therefore, costs include all the
cost such as selling, production and administration and the variable costs are those that is
incurred with an increase in the level of output that is produced. In order to accurately
conduct the cost volume profit analysis, it is required to have the knowledge of costs and
changes in the variable and fixed variable. The evolution of total cost, total revenue and
operating profit due to change in the level of production, fixed cost and variable cost is
analyzed by the model of cost volume profit analysis.
The analysis also requires the computation of contribution margin that is the
difference between the variable and sales expense. Such margin is the amount of revenue that
is left after all the variable expenses have been covered and this is used to cover the operating
income and fixed expense. When assessing the usefulness of cost volume analysis in making
certain decisions, it is essential to have a number of assumptions in place. These include
assuming that the behavior of cost and sales revenue is linear throughout the range of
activities. That is the variable cost per unit, selling price per unit and the amount of fixed cost
would remain constant. The number of units sold would be equal to the number of units
produced and all costs can be divided into variable and fixed elements (Shield, 2015). In
addition to this, the change in the total variable cost is in direct proportion to the level of
activity. There is no change in the market conditions, labor productivity and production
technology.

12
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
The problems of cost volume profit can be solved if the contribution margin income
statement is recasted as an equation. Operating income is computed as the difference between
sales and total variable and fixed expenses. The approach of cost volume and profit
incorporates the income statement, marginal contribution, estimates of some cost volume
profit actors and estimation such as unit variable cost, sales price per unit, target profit, fixed
cost of sales and marginal contribution for unit. Some of the general information related to
the business environment on its cost, production and profit is provided by conducting such
analysis. Break even represents the proportion of each dollar of sales attributable to profit.
The management of Sunshine Continental Pty Limited would be able to provide an insight
into the effects of interrelationships impacting the profits of the firm. Managers can rely on
the cost volume profit analysis for controlling and planning the profits more effectively and
thereby concentrating on the relationships among change in the volume, cost, revenue, profit
and tax (Thomas, 2016). Therefore, management of the hotel would be able to conduct a
systematic examination of the inter relations between production and sales volume, selling
prices, expenses, cost and profits.
The table below depicts that computation of breakeven for the current hotel rooms and the
break even points for room is also recommended.
Total actual room sales $
87,750
Number of rooms available 32
5
Room sales per room (87750/325) $
270
Variable costs per room (31355/325) $
96
Contribution margin per room (270-96) $
174
Break even in number of room (46521/174) $
268

13
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
Break even in dollar amount (268*270) $
72,360
The total number of rooms available is 325 and the actual sales made by selling room
is $ 87750. Sales revenue per room made by the hotel is $ 270 along with the variable cost at
$ 96. The contribution margin is computed from the difference of the sales made and the
variable cost. In addition to this, breakeven is computed by divining the total fixed cost
incurred by the contribution margin per room. The break even for the current hotel rooms in
dollar is computed by multiplying room sales with break unit in number of units. Therefore,
break even for the current hotel rooms is 268 and the amount of break even in dollar is
computed at $ 72360. From the analysis of the facts, it can be deduced that Sunshine
Continental hotel is required to sale 268 rooms to break even that is make their total cost
equivalent to the total revenue earned. Using the cost volume profit analysis helps the
management of the hotel to determine the level of number of rooms that should be sold for
achieving breakeven (Quattrone, 2016).
Conclusion:
The report is prepared to evaluate the cost and management accounting situation of
sunshine Continental Pty Limited using the technique of cost control and performing the
variance analysis. It has been found that there are several cost drivers and the relevant cost
drivers that is driving the cost of the business of Sunshine is resource cost drivers. From the
analysis of the facts of the given case study, it has been observed that the cost control areas of
the hotel has been identified as wages paid to permanent and casual employees, repair and
maintenance, and water and electricity supply charges. Some of the measures have been
recommended to control the areas that is resulting in increasing expense. In the later section
of the report, variance performance analysis has been demonstrated that has analyzed the

14
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
deviation of the components of expenses and income between their actual and budgeted
figures. The recommendation for the company to achieve the break even analysis is done by
performing the cost volume profit analysis.
References list:
Alsharari, N. M., Dixon, R., & Youssef, M. A. E. A. (2015). Management accounting
change: critical review and a new contextual framework. Journal of Accounting &
Organizational Change, 11(4), 476-502.
Chenhall, R. H., & Moers, F. (2015). The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, organizations
and society, 47, 1-13.
Eldenburg, L. G., Brooks, A., Oliver, J., Vesty, G., Dormer, R., Murthy, V., & Pawsey, N.
(2019). Management Accounting. John Wiley & Sons.
Eldenburg, L. G., Krishnan, H. A., & Krishnan, R. (2017). Management accounting and
control in the hospital industry: A review. Journal of Governmental & Nonprofit
Accounting, 6(1), 52-91.
Granlund, M., & Lukka, K. (2017). Investigating highly established research paradigms:
Reviving contextuality in contingency theory based management accounting
research. Critical Perspectives on Accounting, 45, 63-80.
Hiebl, M. R. (2018). Management accounting as a political resource for enabling embedded
agency. Management Accounting Research, 38, 22-38.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

15
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
Malmi, T. (2016). Managerialist studies in management accounting: 1990–
2014. Management Accounting Research, 31, 31-44.
Merchant, K. A., & White, L. F. (2017). Linking the Ethics and Management Control
Literatures☆', Advances in Management Accounting (Advances in Management
Accounting, Volume 28).
Otley, D. (2016). The contingency theory of management accounting and control: 1980–
2014. Management accounting research, 31, 45-62.
Quattrone, P. (2016). Management accounting goes digital: Will the move make it
wiser?. Management Accounting Research, 31, 118-122.
Sands, J., Lee, K. H., & Gunarathne, N. (2015). Environmental Management Accounting
(EMA) for environmental management and organizational change. Journal of
Accounting & Organizational Change.
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Senftlechner, D., & Hiebl, M. R. (2015). Management accounting and management control in
family businesses: Past accomplishments and future opportunities. Journal of
Accounting & Organizational Change, 11(4), 573-606.
Shields, M. D. (2015). Established management accounting knowledge. Journal of
Management Accounting Research, 27(1), 123-132.
Thomas, T. F. (2016). Motivating revisions of management accounting systems: An
examination of organizational goals and accounting feedback. Accounting,
Organizations and Society, 53, 1-16.

16
COST AND PERFORMANCE MANAGEMENT OF TOURISM AND HOSPITALITY
Van der Stede, W. A. (2017). “Global” management accounting research: some
reflections. Journal of International Accounting Research, 16(2), 1-8.
van Helden, J., & Uddin, S. (2016). Public sector management accounting in emerging
economies: A literature review. Critical Perspectives on Accounting, 41, 34-62.
Wagenhofer, A. (2016). Exploiting regulatory changes for research in management
accounting. Management Accounting Research, 31, 112-117.