BIZ201 - Accounting for Decision Making: Crystal Hotel Analysis Report

This report presents an analysis of Crystal Hotel's promotional budget and applies Cost-Volume-Profit (CVP) analysis to evaluate its financial strategies. Task 3 outlines a promotional budget, detailing various advertising methods like full-page ads, digital foyer displays, and billboards, along with their respective budget allocations. Task 4 involves a CVP analysis, calculating contribution margins, contribution margin ratios, and breakeven points. The analysis includes scenarios for different room charges and target profits, providing insights into the hotel's profitability. The report highlights the importance of CVP analysis as a cost management tool and its role in evaluating sales promotion activities, aiming to increase contribution margin and reduce breakeven sales quantities. The report also considers the impact of increasing room charges on the breakeven point and the ability to achieve target profits, with references to relevant accounting literature.

Task 3: Promotional Budget
 Full Page: The full page item is selected for promotion of the wellness center that have
maximum budget allocated for the time period of 5 weeks. This would help in
disseminating the information about the wellness center to large number of people and
thus gathering large audiences. The full page containing description of different type of
activities provided within the wellness center would help in seeking attention of large
number of people
 Weekly rate per panel: The next item selected is advertising about the wellness center
with the use of digital foyer and this is allocated the next higher budget. The activity is
planned to be carried for 3 weeks and it is selected because it would provide benefit of
reaching to mass audiences by broadcasting the video graphic in the area that is visited by
large number of people. Also, the digital platform used will enable in seeking attention of
people and having a long-lasting impression on their mind (Lalli, 2011).
 Lead Panel: The shelter post containing a poster having information about the wellness
center will be posted in about four buses. The activity has also been allocated with higher
budget as it would enable in promoting the wellness center activities to large number of
people visiting the bus.
 Large Billboards: The large billboards are eye-catching for the audiences and target a
large and diverse market. Therefore, they have been allocated a higher budget as creating
4 such huge billboards would requires extensive financial resources
 Rate Card Value: The creative billboard having printed logo or other images can be very
charming for the audiences. Such promotional activity would require higher budget and
development of 3 printed billboards would help in developing a long-lasting impression
in mass audiences
 Designs: The poster containing information about the wellness center would help in
providing information about special offers or events of the wellness center. As such, it
has also been included as a promotional activity and it is decided to print about 6 such
posters and paste them in the public places.
 Shopalite: This type of promotional event would enable in providing maximum reach
through retail channels. It has been decided to use 3 retail platforms for advertising about
the wellness center (Rasmussen, 2013)

 Wrap: It is allocated a higher budget as it involves marketing through displaying
information about the wellness center on a vehicle. It would be very eye-catching for
audiences and as such use of 5 such mobile billboards would help in gaining attraction of
large number of people.
 The other type of promotional activities includes printing A5, medium billboard, and
quite page strip and trail panel. The ads posted on A5 size paper, use of medium-sized
billboards, page strip advertisement on newspaper or magazine and ads posted on back of
bus or other such large vehicle can also help in reaching mass audiences (Shim, Siegel
and Shim, 2011).
Task 4: CVP Analysis
Part 1: Contribution margin per service
Contribution margin is calculated after deducting all the variable expenses from the sale
price of the product or service. In the given case, Crystal Hotel charges $120 for one room per
night for one guest and associated variable cost for one room is $ 35. Hence the contribution
margin can be calculated as $120 less $35 ie $85.
Part 2: Contribution margin ratio
Contribution margin ratio is calculated as price per unit divided by contribution margin
per service (Adler, 2013). It is calculated as 71% and all calculation has been shown in excel file.
Part 3: Breakeven
Breakeven point refers to sales level where there is no actual gain or loss to the company.
It refers to the sales units that will generate contribution equal to the fixed cost. At breakeven
point, Crystal Hotel will not have any profit or loss.
Breakeven in units
It is calculated as fixed cost divided by contribution margin per unit (Calculation has
been provided in excel file). Contribution margin of per room per guest is $85 and fixed cost is
$40000 that indicates that breakeven units will be 471 units.

Breakeven in dollars
It is calculated as breakeven units multiplied by breakeven units. In case of Crystal Hotel
the breakeven number of room that should be booked is 471 units and sale price is $120 that
reflects that breakeven in dollars will be $56471.
Part 4: Breakeven when target profit is given
In case when target profit has to be achieved and there is need to calculate the point
where the sales units will help to achieve the given target profit, it is good to calculate the
breakeven through taking fixed cost and profit as total cost that need to recover from the
contribution per unit.
Formula: Fixed Cost + Target Profit/Contribution margin per unit (Zimmerman and Yahya-
Zadeh, 2011)
In case of Crystal Hotel fixed cost is $40000 and target profit is $150000 which amounts
to $190000. As per the formula the breakeven units when target profit is given has been
calculated as 2235 units. At 2235 units of sales Crystal Hotel will able to earn the target profit of
$150000.
Part 5: Important of CVP analysis and review of effectiveness of promotion
Cost volume profit analysis is useful cost management tool that helps to analyze the cost
effectiveness in the given scenario. CVP analysis helps in calculating the breakeven point which
can be further used in evaluating the sales promotion activities and also achieve the target profit.
In the given case of Crystal Hotel, promotional activities will help to increase the contribution
margin per unit and it will lower the breakeven sales quantity. Without the sales promotion the
occupancy rate is 70% throughout the year and it will increase to max 100% when company
make sales promotional activities (Vanderbeck, 2012).
Part 6: Case of increasing room charge to $150

The increase in the room charge at Crystal Hotel to $150 will result in decrease in sales
unit or it can even remain same due to sales promotional activities. The increase in the sales price
to $150 will change the contribution margin to $ 115 and thereby impacting the breakeven sales
unit. The new breakeven sales unit when target profit of $150000 is given, will be ($40000+
$150000)/$115 = 1652 units. It means Crystal Hotel needs to sell only 1652 units in order to
achieve the target profit of $150000 in comparison to 2235 units when there are no promotional
activities (McWatters and Zimmerman, 2015).

References
Adler, R. 2013. Management Accounting. UK: Routledge.
Lalli, W. 2011. Handbook of Budgeting. US: John Wiley & Sons.
McWatters, C., and Zimmerman, J. 2015. Management Accounting in a Dynamic Environment.
UK: Routledge.
Rasmussen, N. et al. 2013. Process Improvement for Effective Budgeting and Financial
Reporting. US: John Wiley & Sons.
Shim, J.K., Siegel, J.G. and Shim, A.L. 2011. Budgeting Basics and Beyond. US: John Wiley &
Sons.
Vanderbeck, E. 2012. Principles of Cost Accounting. USA: Cengage Learning.
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and
control. Issues in Accounting Education, 26(1), pp.258-259.