Snowy Mountain Lodge Service Profitability Analysis

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Management Accounting Problems
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Executive Summary
The aimed of creating this report is to show the business of Snowy Mountain Lodge that which
three service are provided and showed calculation related to the cost of each service for
determining the profitability of each service.
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Table of Contents
Executive Summary..................................................................................................................................2
Introduction................................................................................................................................................4
1 Process costing.....................................................................................................................................5
2 Assessment of profitability of accommodation service...................................................................11
3 Hybrid costing approach.....................................................................................................................13
4 Assessment of profits of providing evening meals..........................................................................15
5 Describing an approach that use in estimating the cost of each tour...........................................17
6 Assessment of service of tour costs is profitable or not.................................................................18
7 Recommendations based on quantitative approach on the recent innovation in hospitality
industry.....................................................................................................................................................20
8 Reviewed of business strategy..........................................................................................................21
Conclusion...............................................................................................................................................22
References..............................................................................................................................................23
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Introduction
The purpose of this report is to provide the brief understanding about the business of Snowy
Mountain Lodge which having a business of rendering service in various form such
accommodation service, providing one time meal (Evening meal) and also provide food facility
include one day tour and half day tour. This report contain severals calculation regarding the
cost of business such as calculations of hybrid costing and cost of accommodation facility and
other cost related to these business. These report shows that quantitative approach is useful for
analysis and improve the business profitability and this approach is also be considered
important by the holding company (Cool Destination ltd.). Hence the overall focus of this
assignment report is to focusing on business profitability and if less than how to improve by
using approach.
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1 Process costing
Process costing is the method of cost accounting. Through the use of process costing within the
organization activity, it provides the information about the cost of product at each level of
production activity (Viriyasitavat, et. al., 2018).
Accommodation
Cost Reception Room maintenance Collection
Staff salary $50,000 $105,000 $60,000
Equipment depreciation and insurance $6,000 155000 4000
Electricity $3,000 5000 2500
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Telephone 4000 - 2000
Building 1200 30000 900
Linen - 4800 -
Consumables 3000 35000 2000
Total $67,200 $334,800 $71,400
a) Cost per person
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Cost per person
=
Cost of accommodation of one year/no.
of backpackers
= 473400/2400
= $197
b) Cost per day
Cost per day
= room maintenance cost/no. of days
= $334800/365
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= 930
Note: It is assumed that in a year, number of days are 360
c) Cost per accommodation payment
Cost per accommodation payment
=
Total of accommodation/no. of
backpackers
= 71400/2400
= $30
d) Cost per person per day
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Cost per person per day
=
(Sum of all accommodation
services)/no. of days in a year *
no. of backpackers
X
No. of
days of
stay
= 473400/(2400* 360) X 5
= 0.54 X 5
= $2.7
Working note:
Cost of accommodation of one year =
Cost of reception + cost of room
maintenance + accommodation cost
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= $ 67200 + $ 334800 + $71400
= $473,400
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2 Assessment of profitability of accommodation service
 First assess the profitability of accommodation service for per person per day
basis
The cost for the company for accommodation service is $ .54 while the company charged from
the backpacker $ 40 on daily basis for providing facility of single room service only. By the
comparisons between the cost and the price which is charged by the organization from the
backpackers is a huge difference. The cost of the accommodation service is less than the profit
earned by the company from such service. It means, the Snowy Mountain Lodge is able to earn
a good income or profit from the service which it was provided. The cost for per person for per
day is calculated taking 360 days in a year (Josiam, et. al., 2017). The company generated a
sufficient income from this service because the cost which is included in providing the
accommodation service to the visitors is much less than the price charged from them. The price
for each backpacker is needed to be paid $ 40 only for one day and also take single room
facility. Hence, the Snowy Mountain Lodge in a profitable situation in this case because of big
difference between the income and cost of accommodation facility to the backpackers (Popat,
et. al., 2018).
 Assess profitability of accommodation service in total
As the company is benefitted by charging a good piece from the backpacker on daily basis, it
means the company is also be beneficial in case when the profitability is evaluate on total basis
because the company having a income and large number of backpackers who stay 5 days on
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an average stay in their lodge. It means the company is also profitable in this case. It can be
justify as that company charge $ 40 per backpacker on daily basis and one backpacker was
stay 5 days on an average and the total number of backpackers who were visited and stay in
the lodge were 2400. By multiplying all these figures, $ 480,000 was obtained as result. By
seeing this income and compare it with the cost of all service of accommodation i.e. $473,400 it
can easily be said that in this situation or case, Snowy Mountain Lodge was also profitable
situation. The total cost of accommodation service is $ 473,400 which included room
maintenance, payment to room accommodation and reception and the price charged from all
2400 backpackers were $ 200 for 5 days ($ 40 on each day for continue 5 days). Establish a
comparison between these two figures i.e. cost and price, the amount which was income is
more than the total cost. So the company is in profitable conditions (Menicucci, 2018). It is said
that if the income side or income is more than the cost then this situation is profitable situation
and if the price which is charged is less than the cost then this situation is loss situation and not
good for the company, individual. But in the case of Snowy Mountain Lodge the price is more
than the cost. So from the overall analysis of this it said company is a profitable company which
is subsidiary of Cool destination ltd.
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