Analyzing Cost Control and Financial Reporting in Hotel Operations

The assignment entails examining the challenges faced by Hotel Futura's restaurant department related to cost control and financial reporting. Key topics include analyzing direct material variances due to par stock level discrepancies, addressing negative variances in kitchen or food costs, and developing performance reports. The discussion involves involving key management personnel such as the Chief Financial Officer (CFO) and production/purchase department officers to address these issues. Strategies for rectification involve scrutinizing internal operations, improving virtual images through feedback mechanisms, and renegotiating supplier contracts to optimize raw material costs. Additionally, the assignment requires reporting cash flow problems to management with justifications and future corrective measures. The analysis draws upon various references exploring topics such as restaurant sales affected by weather factors, food wastage behaviors, pricing strategies in food deserts, organic menu impacts on competition, promotion influences on fast-food sales, local foods purchasing decisions, and determinants of meal pricing using hedonic models.

Running head: HOSPITALITY
Hospitality
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Task 1:.............................................................................................................................................................................................2
Task 2:.............................................................................................................................................................................................4
Task 3..............................................................................................................................................................................................6
Synopsis 1....................................................................................................................................................................................6
Synopsis 2....................................................................................................................................................................................7
Synopsis 3....................................................................................................................................................................................9
Answer to part 1......................................................................................................................................................................9
Answer to part 2......................................................................................................................................................................9
Answer to part 3......................................................................................................................................................................9
Answer to part 4....................................................................................................................................................................10
References.....................................................................................................................................................................................10

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Task 1:
Total Revenue 2016 $11,213,138.73 $14,253,521.43
Forecasted
2017
Room Budget Forecast $ Forecast % Expenses Analysis Forecast %
Rooms Available 63875 100% 61320 100% COGS
$
1,103,760.00 15.00%
Rooms Occupied 51548 49056 Staff Costs
$
1,389,779.44 18.89%
Total Occupancy 80.7 80.7% 80 80% Other Expenses
$
555,911.78 7.55%
Revenue Available per
room
$
134.80
$
150.00 Total Expenses
$
3,049,451.22 41.44%
Total Room Revenue
$
6,948,897.21
$
7,358,400.00
Total Catering Revenue
$
4,264,241.52
$
6,895,121.43
Foods Budget Expenses Analysis Forecast %
Total Revenue
$
2,019,370.53
$
2,302,728.07 COGS
$
656,277.50 28.50%
Food Revenue
$
1,740,112.81 86.17%
$
2,001,129.73 86.90% Staff Costs
$
1,013,200.35 44.00%
Beverage Revenue
$
279,257.72 13.83%
$
301,598.34 13.10% Other Expenses
$
161,190.96 7.00%
Total Expenses
$
1,830,668.81 79.50%
Banquet Budget Expenses Analysis Forecast %

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Total Revenue
$
1,313,940.16 $3,534,329.91 COGS
$
918,925.78 26.00%
Food Revenue
$
876,759.95 66.73% $2,000,000.00 56.59% Staff Costs
$
671,522.68 19.00%
Beverage Revenue
$
183,736.83 13.98%
$
1,534,329.91 43.41% Other Expenses
$
494,806.19 14.00%
Total Expenses
$
2,085,254.65 59.00%
Room Service Budget Expenses Analysis Forecast %
Total Revenue
$
417,442.15
$
467,811.65 COGS
$
114,613.85 24.50%
Food Revenue
$
335,796.64 80.44%
$
386,166.14 82.55% Staff Costs
$
159,055.96 34.00%
Beverage Revenue
$
34,668.69 8.31%
$
34,668.69 7.41% Other Expenses
$
23,858.39 5.10%
Other Revenue
$
46,976.82 11.25%
$
46,976.82 10.04% Total Expenses
$
297,528.21 63.60%
Mini Bar Budget Expenses Analysis Forecast %
Total Revenue
$
146,471.02
$
146,471.02 COGS
$
41,011.89 28.00%
Beverage
Revenue/Minibar
$
146,471.02 100%
$
146,471.02 100% Staff Costs
$
65,472.55 44.70%
Other Revenue Other Expenses
$
19,627.12 13.40%
Total Expenses
$
126,111.55 86.10%
Bar Budget Expenses Analysis Forecast %
Total Revenue
$
367,017.86
$
443,780.79 COGS
Food Revenue
$
67,191.88 18.31%
$
83,989.85 18.93% Staff Costs
$
159,761.08 36.00%
Beverage Revenue $ 81.69% $ 81.07% Other Expenses $ 18.00%

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299,825.78 359,790.94 79,880.54
Total Expenses
$
239,641.62 54.00%
Task 2:
Budget Forecast Sheet Futura Restaurant and Bar
Turnover
Custome
r
numbers
Average
Spend
(Food)
Food
Revenue
Average
Spend
(Beverage)
Beverage
Revenue
Total
Revenue Profit Staff Cost Overheads
COGS -
Foods &
Beverage
January 1850
$
45.00
$
83,250.00
$
9.70
$
17,945.00
$
101,195.00
$
36,430.20
$
28,840.58
$
7,083.65
$
28,840.58
February 2000
$
37.00
$
74,000.00
$
9.70
$
19,400.00
$
93,400.00
$
33,624.00
$
26,619.00
$
6,538.00
$
26,619.00
March 700
$
42.00
$
29,400.00
$
9.70
$
6,790.00
$
36,190.00
$
13,028.40
$
10,314.15
$
2,533.30
$
10,314.15
April 1200
$
48.00
$
57,600.00
$
9.70
$
11,640.00
$
69,240.00
$
24,926.40
$
19,733.40
$
4,846.80
$
19,733.40
May 1200
$
36.50
$
43,800.00
$
9.70
$
11,640.00
$
55,440.00
$
19,958.40
$
15,800.40
$
3,880.80
$
15,800.40
June 600
$
35.00
$
21,000.00
$
9.70
$
5,820.00
$
26,820.00
$
9,655.20
$
7,643.70
$
1,877.40
$
7,643.70
July 950
$
34.00
$
32,300.00
$
9.70
$
9,215.00
$
41,515.00
$
14,945.40
$
11,831.78
$
2,906.05
$
11,831.78
August 800
$
38.00
$
30,400.00
$
9.70
$
7,760.00
$
38,160.00
$
13,737.60
$
10,875.60
$
2,671.20
$
10,875.60
Septembe
r 900
$
29.00
$
26,100.00
$
9.70
$
8,730.00
$
34,830.00
$
12,538.80
$
9,926.55
$
2,438.10
$
9,926.55
October 650
$
29.50
$
19,175.00
$
9.70
$
6,305.00
$
25,480.00
$
9,172.80
$
7,261.80
$
1,783.60
$
7,261.80
November 980 $ $ $ $ $ $ $ $ $

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35.50 34,790.00 9.70 9,506.00 44,296.00 15,946.56 12,624.36 3,100.72 12,624.36
December 2200
$
48.00
$
105,600.00
$
9.70
$
21,340.00
$
126,940.00
$
45,698.40
$
36,177.90
$
8,885.80
$
36,177.90
Crosscheck
$
693,506.00
$
249,662.16
$
197,649.21
$
48,545.42
$
197,649.21
TOTAL 14030
$
557,415.00
$
136,091.00
$
693,506.00
$
693,506.00 Crosscheck

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Task 3
Synopsis 1
The issue presented in the question is that the Hotel Futura has obtained a variance of about 4.5 percent pertaining to
the fields of Food Cost and COGS or Beverages in both the Restaurant and the Bar Operations. The finance team, which was
appointed with the task of creating budget forecasts, had been preparing budgets with accurate forecasting since the last three
years. However, in the current year the managmenet has observed variances in the actual costs and outputs. The reasons for
such a variance may be due to uneven valuation of the stock, increase in the price of raw materials, unprecedented rise in the
labor costs, increase in food wastage or occurrence of internal theft or pilferage (Lu and Gursoy 2017).
The five examples of areas that would be investigated are the following:
 The annual contract that has been entered with the vendors or the suppliers of the raw materials for the preparation of
food should be revised. The purchase department should look into the prices of the raw materials and negotiate the food
costs, as this may be the primary reason in the rise of the food costs.
 Another reason in the rise of the food costs might be the purchase of the raw materials on cash basis. This reason might
go unnoticed by the management but the reason of purchase of raw materials on the basis of credit might result in the
reduction of costs. This is because a credit-based purchase gives the scope of revenue generation, post, which the

7HOSPITALITY
payment for the raw materials can be done. Therefore, the mode of purchase of raw materials might be investigated
(Yim, Lee and Kim 2014).
 The increase in the labor costs might be another reason for the rise in the food costs. This might be controlled by the
reducing employee turnover.
 The process of yield management is an essential part of food cost control. Therefore, the management of Hotel Futura
should make it an effort to implement yield management in the system so that the food costs can be controlled. Yield
management gives an overview into the process as to how to utilize the raw materials optimally in order to prepare a
particular food item (Mathe-Soulek et al., 2016).
 Another area that should be investigated is whether there has been any theft or pilferage that has resulted in an
unprecedented rise in the food or beverage costs. There are multiple areas of committing theft in the restaurant
industry. Therefore, the financial statements and other financial documents should be analyzed in a proper way in order
to mitigate those risks (Kotas 2014).
Synopsis 2
The decreasing trend in Hotel Futura may be due to various external factors like:
 Increase in competition and stagnation in revenues – This external reason may be the factor due to which Hotel Fututra
is facing decreasing trends. The increase in the number of competitors may lead to lesser obtaining of revenue as the
customers now get an increased number of options within a specified price range. This has resulted in incurring of a

8HOSPITALITY
decreasing or stagnant rate of revenue by Hotel Futura. This could be determined by comparing the revenues generated
by its competitor restaurants (Prabhavathi, Kishore and Kumar 2014).
 Price promotion - Intense competition on the basis of price of the product or food item has been another major external
reason for Hotel Futura facing decreasing trends for the last six months. Aggressive price promotion has been the major
policy followed by the firms in the food industry in order to fight the excessive competitiveness of the firms. But such
practices have resulted in decreasing the profit margins of the firm including Hotel Futura (Bujisic, Bogicevic and
Parsa 2017).
 Impact of climatic changes on the cost of raw materials - The climatic changes have resulted in natural disasters like
flash floods, droughts, earthquakes and tsunamis that have negatively impacted cultivation in a large way. Seasonal
changes have also resulted in poor production of crops and fruits that have ultimately resulted in price rise. Moreover,
the utilization of different chemicals and other materials for increased production also increase the cost of production of
the raw materials. This also ultimately leads to rise in price of raw materials (Dopson and Hayes 2015).
 Shift in change of the tastes and preference of the consumers – Another major external factor that has resulted in a
decreasing trend is the change in the demand, tastes and preferences of the consumers. The consumers in the recent
times have become more aware about the food that they purchase. They have become much more particular about what
they want in their food and how they want it. Therefore, the restaurants have to undergo a massive change in order to
match the constantly changing tastes and preferences of the consumers (Leschewski and Weatherspoon 2014).

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 Impact of the social network and other online blogs and websites – People nowadays before visiting a restaurant check
the feedback and ratings that it has got over the various food blogs and websites and social networks. Thus, a restaurant
has to make sure that it maintains both its social and virtual image in order to ensure obtaining an increasing trend of
revenue. Therefore, Hotel Futura should also check what kind of feedback it receives online and develop methods to
improve its virtual image (Grandhi and Singh 2016).
Synopsis 3
Answer to part 1
The reports that need to be prepared the reported issues are direct material variance report and performance report. This
is because the par stock level exceeding the budgeted purchase would result in a direct material variance report and the kitchen
or food cost budget displaying a negative variance of $13467 would result in the preparation of performance report.
Answer to part 2
The chief financial officer and the officer in charge of the production and purchase department should be involved
when these matters are being discussed.
Answer to part 3
These issues may be rectified by looking into the inner proceedings of the hotel. The management of Hotel Futura
should make it a point to point out the exact location where the hotel is losing out its money. All the department heads should
be convened into a meeting by the management and a turnaround plan should be constructed. The suggestions and feedbacks

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of all the department heads should be taken into account and the goals or objectives of the plan should be clearly identified.
For instance, the restaurant should make it a point to improve its virtual image. It should also revise the contracts with its
suppliers negotiate the costs of the raw materials involved. Therefore, a sincere approach should be taken by the management
in order to mitigate those issues.
Answer to part 4
The cash flow issue should be reported to the management and sufficient justifications should be given as to why the
par stock level was exceeded and what next has to be done in order to rectify such an error in the future.
References
Bujisic, M., Bogicevic, V. and Parsa, H.G., 2017. The effect of weather factors on restaurant sales. Journal of Foodservice
Business Research, 20(3), pp.350-370.
Dopson, L.R. and Hayes, D.K., 2015. Food and beverage cost control. John Wiley & Sons.
Grandhi, B. and Appaiah Singh, J., 2016. What a waste! A study of food wastage behavior in Singapore. Journal of Food
Products Marketing, 22(4), pp.471-485.
Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.
Leschewski①a, A.M. and Weatherspoon, D.D., 2014. Fast Food Restaurant Pricing Strategies in Michigan Food Deserts. Food
demand, diet, p.147.

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Lu, L. and Gursoy, D., 2017. Does offering an organic food menu help restaurants excel in competition? An examination of
diners’ decision-making. International Journal of Hospitality Management, 63, pp.72-81.
Mathe-Soulek, K., Krawczyk, M., Harrington, R.J. and Ottenbacher, M., 2016. The impact of price-based and new product
promotions on fast food restaurant sales and stock prices. Journal of food products marketing, 22(1), pp.100-117.
Prabhavathi, Y., Kishore, N.K. and Kumar, M.R., 2014. Consumer Preference and Spending Pattern in Indian Fast Food
industry. International Journal of Scientific and Research Publications, 4(2).
Sharma, A., Moon, J. and Strohbehn, C., 2014. Restaurant's decision to purchase local foods: Influence of value chain
activities. International Journal of Hospitality Management, 39, pp.130-143.
Yim, E.S., Lee, S. and Kim, W.G., 2014. Determinants of a restaurant average meal price: An application of the hedonic
pricing model. International Journal of Hospitality Management, 39, pp.11-20.