Analyzing Cost, Stock, Cash & Budgetary Controls in Hospitality

This report provides a detailed overview of finance in the hospitality industry, focusing on cost analysis, stock control, cash management, and budgetary control. It defines cost and its elements (material, labor, overhead), differentiating between direct and indirect costs and examining cost behavior (fixed, variable, semi-variable). The report also discusses methods of stock control, including Economic Order Quantity (EOQ), Just-In-Time (JIT), LIFO, FIFO, and ABC analysis, as well as methods of cash control, such as cash budgets and internal control mechanisms. Furthermore, it explains budgetary control, its purpose, advantages, disadvantages, and the budgetary control cycle. Finally, the report covers variance analysis, including the meaning, calculation, types (favorable and unfavorable), causes, and corrective actions for material price variance (MPV), material usage variance (MUV), labor rate variance (LRV), and labor efficiency variance (LEV).

Finance in Hospitality

 Cost simply can be defined as the sum of amount that an entity had
paid or required to pay for acquisition of required sources for
production purpose.
 In economics, cost can be referred as monetary valuation of
material, time, value, utility, labor, risk, efforts and opportunity
forgone in the manufacturing functions.
2.1 Meaning of cost

 Material
 Labor
 Overhead
Total Cost (TC) = Material + Labor + Overhead
Element of cost

Contd…

 Direct Material: Timber in furniture manufacturing,
textile in garment industry, gold used for jewellery
making
 Direct Labor: Employees directly engaged in
production process
 Direct Overhead: architect fees, patent and royalties.
consultant fees
Traceability: Direct cost

 Indirect Material: Oil for machine lubricating, nails
for furniture, thread for garments
 Indirect Labor: Supervisor, office staff, distribution
and selling departmental staff
 Indirect Overhead: Rent, factory insurance, tax paid,
depreciation and others
Traceability: Indirect cost

 Fixed : Depreciation, Rent, Insurance
 Variable: Direct cost of material, labor and overhead
 Semi-variable/Semi-fixed: Electricity and telephone
charges
Cost behavior

 Production: Material, labor and chargeable expense
 Administration: Stationery, postage, manager salary
 Marketing: Advertisement, free sample
Type of overheads

It is computed by dividing gross profit with the total
turnover/sales of the business can be represented as
follows:
Gross profit percentage

 Sales revenue: Cash sales + credit sales – sales return
 Gross profit = Sales – cost of goods sold
Element of Gross profit percentage

 Price fixation is of utmost importance in which
company set product price by adding a desired mark-
up.
Price = Cost + Desired profit mark-up
Sales price

 Cost of the product
 Desired profit percentage
Element of selling price