Globally Hotels operators and directors are trusting on managerial accounting techniques to assist them boom in the extremely competitory and economic system recession. The critical facet of concentrating on increasing gross, minimise cost, align incentive to public presentation, maximise net incomes level without diminution in the quality of services rendered by Hoteliers are going germinating issues in the cordial reception industry.
The kernel of this undertaking is uncover how direction accounting is use to supply specialized internal information to the Managers in Lagos Airport Hotel, Lagos Nigeria that are responsible for directing and commanding operations within the hotels. The types of information provided by direction accounting information systems and how it assist the direction in their strategic planning ( Short or Long term ) , measurement public presentation, attained the organizational strategic aims of increasing the proprietors wealth.
Lagos Airport Hotel Limited, is a subordinate of Odu’a Investment Company, The hotel began operation in 1942 under the ownership and direction of Joseph Harold, a Brition. The hotel name was so Grand Hotel which was subsequently changed Ikeja Arms was incorporated in 1961, holding started concern as an proprietor managed hotel with 5 suites in 1942 under the name “ Grand Hotel ” , Lagos.with 5 suites. It was renamed “ Ikeja Arms Inn ” in 1956 acqiured in 1959 by the Government of Western part of Nigeria comprises of Oyo, Ogun, Ondo, Osun and Ekiti States in 1959 and incorporated as Lagos Airport Hotel in 1961.
As at today the hotels had grown from 5 suites in 1942 to 277 suites consist of of, presidential suites, Monarchical Suite, Executive Suites, Presidential Suites, Executive/Business Suites, Standard/Executive Double, six conference halls well-secured auto Parkss, two international Restaurants four Bars and an Olympic-sized Swimming Pool.
The hotel under the leading of AlhajiA Adebayo Jimoh, has over five hundred extremely professional staff with extra two subordinates hotels viz. Lafia Hotel and Premier Hotel Ibadan.
COST BEHAVIOUR ANALYSISThe hotel strategic vision is to be the preferable pick for clients in the Nigeria ‘s cordial reception industry. and mission statement is to passionately present efficient and catering services at competitory and low-cost monetary values. In Peat study 2009 the Airport is rated among the best top hotels in Nigeria and among the first prima cordial reception companies in Lagos State. is rated among the best top 20 hotels in Nigeria.
Hotel BUSINESS OPERATION AND COST BEHAVIOUR ANALYSIS
HOTEL ACCOUNTING STRUCTURE AND LAGOS AIRPORT HOTEL EXPERIENCE
The hotel concern operation globally is characterised with a figure of different cyclical gross revenues gross rhythms which includes day-to-day runing rhythm, hebdomadally, seasional rhythm and general concern rhythm ( Reccession ) . The Lagos airdrome hotels is non expempted from the above cyclical concern patterned. Significantly, these assorted cyclical operation in hotel create a alone troubles in prediction gross and cost.
Second, cordial reception operation are “ Peoples oriented and people- driven ” , it is more hard to efficaciously automatize and command cost than it is on other non cordial reception concern sector
2.1 COST BEHAVIOUR AND ANALYSIS
Lagos Airport Hotel operations tend to be extremely departimised with separate runing division/unit that provide accommodation/lodging, Restaurants & A ; Bar services, Conference & A ; Banquest, Etc. Consequently the hotel accounting systems are designed to let an independent rating of each operating section or division.
To this terminal, cost straight traceable to a section are identified as direct cost, typically major direct cost in hotels includes cost of gross revenues ( nutrients & A ; drinks ) , salary & A ; rewards, runing supplies e.g Soap, Toilet tissue paper etc. After direct costs are determined they are deducted from gross to insulate conducive income which represent the dept ‘s or division part to back up undistributed general operating expenses.
As in their pattern indirect cost are non easy traceable to a section and referred to as “ undistributed costs ”
One of the statements in favor of apportioning indirect disbursals to section is that aithough section directors are non responsible for commanding those costs, they should be cognizant of what part of them is related to their section since this could hold an impact on departmental determination doing such as set uping room rates, nutrients and other service selling monetary values at a degree that covers all costs non merely direct cost.
When this type of Full -cost accounting is implemented in a duty accounting system, it allows a director to cognize the entire minimal gross that must be generated to cover all costs even though the control of some of those costs is non their responsility.
However there are mistake as respect the direct costs, governable costs, indirect costs and non governable cost. The averment that say direct costs are by and large more easy controlled than indirect costs but ( Salome 2009 ) argued that “ in the long tally all costs are governable by person at sometimes ”
2.2 RELEVANT & A ; NON RELEVANT COST CONCEPT AND APPLICATION IN HOTEL
The theory of relevant and non relevant cost is widely used in cordial reception cost direction ( ) the application is usage for assortment of determination devising.
A relevant cost is one that affect determination and such a cost must be in the hereafter and different between options. For illustration The Lagos airdrome is sing to present on-line booking with ATM Payment portal, the relevant cost would be the cost of web solution, ATM Machine, the cost of developing employees on the new solutions and any alteration in care and material supply costs on the new solution/machine. Equally long as no alteration is necessary in the figure of staff required, the hotel labour cost would non be relevant cost and it would do no difference to the determination
On cost behavior Most hotels have a high proportion of fixed cost which are non expected to alter in the short tally of an operating period og a twelvemonth or less and will non change with additions or lessening in gross revenues gross, illustrations are direction wages, insurance or committed cost of an advertisement run, So this type of costs are non relevant for determination devising
Variable cost on the manus alteration in direct proportion to a alteration in gross revenues gross for illustration the more nutrients and imbibe sold, the more cost of gross revenues incurred
The utility of relevant cost, non relevant cost, fixed, variable, done for cost etc in hotel concern help the directors in doing the undermentioned types of determination
Allotment of indirect costs to gross unit/dept
Which types of equipment should they purchase
Whether to sell below entire cost?
Whether hotel should be near during off season? As the cost of low -activity characterises hotel sectors
Which investment/business should they purchase
Make or purchase determination devising
In the airport hotel activity -based costing is non loosely used while mark costing has squat acceptance degree. But standard costing is most popular costing used in the hotel
2.3 MANAGEMENT ACCOUNTING SYSTEM AND DECISION MAKING IN HOTEL – A RELATIVE ILLUSTRATIVE STUDY OF LAGOS AIRPORT HOTEL
The concern success of the concern depends to a really big extent upon the capacity of top direction to develop the appropriate schemes in a figure of issues which conform to the concern corporate strategic ends
The hotels have typically diverse degree of determination devising. Management at each degree takes determination that are within its capableness and duty
For each degree of determination doing direction accounting system has been found to supply appropriates information required for direction determination devising.
To be specific the direction accounting information system was found to be helpful to the hotel direction to explicate and put to death
Schemes concerned with volume and capacity
Schemes for measuring the comparative profitableness of division/ section or gross country
Schemes for pricing in status of hotel infinite capacity
Schemes for choosing product/service scope where there are capacity or other restraints.
Fringy costing is used by the hotels for cost construction and pricing determination. The fringy costing is chiefly used for short-run planning, while activity based costing is the favoured costing method for long term strategic planning.
The cost -volume -profit attack to determination ( e.g Breakeven analysis ) are widely produces to help direction in determination devising. this assist them in measuring current and future events sing gross revenues gross influx and cost escape
Cost volume net income analysis ( CVP ) cost are separated into variable and fixed componenets. They are so used to do informed and rational determination
TABLE – Screening Break even gross revenues
Break even gross revenues riding for Loding unit for 2009 ( See Financal hilghlight week6 undertaking lineation )
The fixed costs ( FC ) are N197,702, gross revenues gross N568,900 and variable cost ( VC ) are N63,968.what is breakeven gross revenues gross?
The interruption even point ( BEP )
= Fixed cost
( Gross saless gross – Variable cost )
( 2053-230 )
BEP = 108 Suites per twenty-four hours.
Fig2: Break even gross
FC / 1- ( variable cost/sales gross )
197702/ 1- ( N63,968/N568,900 )
197,702/88.7 % = N222,888
CVP analysis is a logical extension of breakeven analysis in hotels concern it is used to do the undermentioned determination among others.
At what degree of gross revenues gross will run income be TARTGETD INcme may be 700,000,000
How much must gross revenues gross addition to cover a new fixed cost
If room rates are alterations, what will be the consequence on suites sold?
Whether to give majority price reductions or non?
New investing determination
BUDGETING AND BUDGETARY PROCESS OVERVIEW IN HOTEL INDUSTRY
The aims of administration will be faciliatated by the execution of an efficient budgeting, this because the whole kernel of budgeting is to guarantee that the allotment of resources is palnned to avoid waste and promote profitableness
For hotel directors to do meaningful determination about future, a director must look in front ( Budget ) Antril. P & A ; Mclaney.E ( 2009 )
Martin & A ; Micheal ( 2004 ) argued that for hotel or eating house operators or manger the budget might be no more than looking in front to tomorrow, gauging how many invitees per dark, gauging how many clients will eat in the eating house etc
Budgets non expressed in pecuniary footings could affect Numberss of invitee to be served, figure of suites to be occupied, figure of employees required, or some other unit as opposed to pecuniary value
Agara ( 2007 ) , Martin & A ; Micheal ( 2004 ) identified the three chief intents of budgeting in hotels concern
To supply organized estimations of future unit gross revenues, gross revenues grosss, disbursals, net income, staffing demands or equipment demands, broken down by runing period and section
To supply direction with long-run and short term ends.
To supply a method of control so that existent consequences can be evaluated against budget programs and accommodations, if necessary can be made
The budgetary rhythm or procedure is a five portion procedure that involved the follows
Establish come-at-able ends or nonsubjective
Plan to accomplish these ends or aims
Compare existent consequences with those planned, and analyse the difference ( discrepancy )
Take disciplinary action required
Better the effectivity of budgeting
The get downing point in budgeting is to calculate gross revenues gross, in hotel operation in calculating the mnager normally considered past existent gross revenues gross and tendencies, current anticipated tendencies and the economic, competitory and confining factors.
Once the gross revenues gross had been forecast, direct operating disbursals can be calculated based on awaited gross revenues degree and undistributed disbursals allocated or deducted to get at the net income.
The assorted types of budgets include fixed, flecible, capital budget, operating, departmental, maestro budget etc
Zero based budgeting ( ZBB ) this budget is found utile for commanding and commanding hotel operation, as the name implies no disbursals can be budgeted for or incurred unless they are jusitified in progress. ZBB requires each section caput to jusitify in progress the full one-year budget froma zero base. The section director responsible for the cost fix the analysis. After each section or division is anakysed, direction ranks all determination unit and the concluding budget is allocated harmonizing to this ranking
The discrepancy analysis is utile tools for budgetary control as it is used for insulating the cause of difference between budgeted and existent figures.
4.0 LAGOS AIRPORT HOTELS FINANCIAL STATEMENT AND PERFORMANCE ANALYSIS
The fiscal study nowadays simply a stewardship study. if the information is to hold existent intending both to the direction and other users of the study, it must be subjected to a procedure of analysis and reading.
To make this, assorted stastics yardstick or analytical tools like ration analysis, comparative analysis, common size perpendicular analyisi, tendency analysis/ per centum can be used.
Ratio analysis is refering with showing relationship between inputs and end product, the aim of ratio analysis is to build a model of such relationship which are of import for the success of the company.
One portion of this model convey together all these facet of the concern which contribute to profitableness both fot the company and proprietors, another portion of the model assesses the liquidness of the hotel, the staying portion reflect the hotel ‘s standing or viability for the hereafter.
Gross net income ratio which indicates the gross border on gross revenues in a period is steadly show a mark of improved 2009 from downward incline that occurred between 2008 & A ; 2007, nevertheless the gross net income ratio needs betterment
The net income ratio and return on capital which indicates a comparative efficiency of the hotels concern and overall profitableness of the concern is unreassuring even with 17.3 % for net return 63.7 ROCE for 2009 the public presentation is still far below expected returns degree and it glowering that the hotel has been public presentation in term of profitableness severely. For the hotel to stay operation for the nearest characteristics it must be profitable and liquid. The scheme to follow here is for the hotel ‘s managemenet to cut down its operational cost, better gross per invitees, rates of occupany and introduce a new merchandises or service that can better gross and profitableness watercourse.
The liquidness place of the hotel is far below ratio 2:1 recomended for healthy company, liquidness ratio step the ability of a house to run into its short -term duties and reflect short term fiscal strength of the house while the pitching ratio is highly high as the company operation is funded from debts and depend on borrowed fund for enlargement which is really vulerabilty to gaining of stockholders and poses a possibility of return -over or bankcruptcy.
The overall tendency analysis for the hotel ( see apendix2 ) provides uselful penetration into some of the factors that might lend to this aweful fiscal place
Interestingly, many single operating ration are specifically available for cordial reception industries which focus on internal operation like rooms/accommodation, Foods & A ; Beverage analysis and determination devising. Some of these analysis includes but non limited to income per invitees for each division, costs per invitee by points, nutrients and or beverage cost per centum, labour cost per centum mean nutrients or beverage dollar/Naira by repasts period and by gross countries, place turnover by repasts period etc
In the suites or lodgimg division norm rate per occupied room, gross per available room ( REVPAR ) , Occupancy per centum, one-year gross per room, labour cost per centum etc
The internal analysis of the above influenced the direction determination devising in term of improve gross revenues degree, directing attempts into selling higher priced suites instead than lower priced, increasing rate of tenancy per centum or mean room rate.
On the impact of success critical factor ( CSF ) on the fiscal public presentation, the pecuniary indexs, 144 operating net income per available room was used
5.0 CAPITAL BUDGETING TECHNIQUES IN HOTEL INDUSTRY
The largest investing that hotel or nutrient seervice concern has to do is in the land and edifice ( Martin & A ; Micheal 2004 ) . The hotels direction besides do frequent investing determination for points such as equipment, furniture purchases and replacing. Due to stretch life clip and colossal of capital spendings entail for capital investing, direction espoused a more matter-of-fact attack and utilize appropriate capital investing control methodological analysis to guarantee right capital investing determination devising
There are jeopardy in doing capital investing, the jeopardies can be rarely be eliminated but there are techniques available that allow the director to cut down some of the quesswork
The Lagos Airport hotels use Payback period and net nowadays value, radon as a tools to steer investing determination
A Case survey of capital investing determination doing in Lagos Airport Hotel
A typical capital investing determination techniques is the Lagos airdrome hotel was contemplating of better the eating house services and be aftering to buy a new type of oven and other modern kitchen setup. Or invest in Cinema or Casio Opertaion The hotel direction is provided with two alternate investing option to take from with their one-year net hard currency influxs over the five -year investing period
The initial investing spending of N4,950,000
NPV is at 12 % , Would either of them be a good investing for the hotel?
The analysis above showed option 1 have a shorter wage back period and logic of utilizing wage back period is that undertakings that can reimburse their cost rapidly are economically more attractive than those with longer payback ( Antrill & A ; Mclaney 2009 ) so Option 1 is to be selected based on wage period methods.
The major drawback o9f wage back period is that it disregard hard currency flow after the payback period and it does non take clip value of money ( Effect of inflation/ involvement /risk etc ) into consideration
Net PRESENT VALUE ( NPV )
Net present value methods of appraisal consider all of the costs and benefits of each investing chance and do a logical allowance for the timing of those costs and benefits
The NPV is see better among all other investing assessment techniques because of cashflow timming acknowledgment, utilizations of all relevant hard currency flow and run into the aim of the concern which to increase proprietors ‘ wealth
LAGOS AIRPORT HOTEL USING NPV METHOD
Here we must inquire how can direction make up one’s mind which option or undertaking is acceptable, judgment by NPV determination which stated that
If the NPV is positive the undertaking should be accepted, if it is negative the undertaking should be rejected
If there are two ( or more ) viing projects/options that have positive NPVs, the undertaking with higher ( or highest ) should be selected.
In this instance of Lagos Airport hotel non of the two option is Negative and it should be rejected unless direction has other not fiscal benefits attached with options which may still at long tally contribute to the realization of the hotels strategic ends.
As usual for concern environment in the hotel industry is a extremely competitvive, and Lagos Hotels Limited found itself in a such competitory based selling section with more than 5000 operators in the market. Significantly the hotels has the followerss 7 majors/ market leaders to finish with
Sheraton Hotels & A ; Tower, Pretoria Hotels, Federal Palace Hotels, Lagos Hilton Hotel, Excellence Hotel, PVC Hotels and Reassurance Hotels
The nucleus keys advantages of rivals in Comparism with Lagos airdrome scope from their location advantage ( Most of them located in Victoria and ikoyi countries of Lagos that accommodation the major concerns in Nigeria ) International Operations advantage, twenty-first century good designed architectural edifice, modern installations & A ; luxury, Branding, high Price advantages, invention plan ( Customer Loyalty Program ) etc
The major advantages of Lagos airdrome is strategic location in the ikeja but with old edifice constructions
Following to Lagos is Victoria Island, which takes while to acquire to, approximately 2hrs, this is because of the sum of traffic and pandemonium on the roads, besides some of the roads are in a spot of a muss, pot holes that can get down you without hint. Victoria island is modern, and the Hotel Eco is really good, but costs ?250 GBP per dark – note the Sheraton in Lagos is besides modern and costs ?300-350 per dark, bottled H2O in the Eco was ?4, but if you are passing ?250 a dark – who cares, you must maintain imbibing H2O in this heat. These hotels do cost more than a London Hotel, but so there is no where else nice apart from Lagos Airport Hotel. Note the Airport Hotel was ?100 per dark, I booked at the desk where ther is a written monetary value sheet on the wall, you will hold to set down a security sedimentation but you do acquire this dorsum at the terminal of your stay.
APPLICATION OF BALANCED SCORED CARD FRAMEWORK ( A CASE STUDY OF LAGOS AIRPORT HOTEL )
Balanced scorecard as the name suggested offers a more balanced position of a house ‘s or of a director ‘s public presentation by intergrating both fiscal and non fiscal information in a consistent manner.This overcomes one of the obvious defects of traditional public presentation measuring systems which topographic points undue accent on historical fiscal information.
For long term – effectual and efficient public presentation, particularly in hotel endeavor, the information related to service quality, debut of new merchandises, service, extra supply, entryway on new market, the rival public presentation and human capital relation direction is critical.
Goardana & A ; Mateja besides empaciated the demand for balanced mark card application in hotel indsutry “ The hotel ‘s operations are oriented towards people and to that stop their fiscal public presentation depends on the behavior and manners of hotels employees, the development of new merchandises and service and as the most of import, guest satisfaction ”
In Lagos airdrome hotel usage it to implement schemes of a change/ restructing in direction programme undergo in 2009
Apart from utilizing it to make a nexus between the public presentation measuring indexs and hotel schemes, Management usage it to pass on scheme to both directors and staff.
At operational degree the Balance scored card are usage to aline employess attempts with those reuired for successful strategic execution However, successful execution of a balanced scorecard is non a fiddling affairs particularly for hotels like Lagos Airport Hotels that is Government owned which make some top direction appointment political in nature. Apart from this balanced scored construct is simple but it execution is found to be clip devouring and dearly-won undertaking particularly to hotel like Lagos Airport with weak fiscal resources and manpower to back up the pattern of this new direction construct in the longrun.
Methodology – Undertaking design and Data aggregation
For the purposed of this undertaking, the information was outsource from the Lagosn airdrome hotel operational manuals, Financial statement, reappraisal of old research done on cordial reception industries, the undertaking instrument was besides extracted from text editions, talk note, treatment board and
To obtain information about rival hunt was made on their web site and calalogue besides obtained from them, i am unable to acquire requested informations whichthey refused on the land of confidentiality.
Direct and unwritten interview was conducted with accounting officers and selected direction staff in Lagos airdrome hotels and accessed were given to inspect and pull out some cost information about the hotels. No questionnaires was used, nevertheless the study consequences caaryout by extremum associates on cordial reception industries in Nigeria was prevue.
The undertaking find out the direction of Lagos Airport Hotel use managerial accounting techniques and control in the hotel operations
That determination devising procedure are executed on managerial accounting tools which including cost direction, budgeting and budgetary tools. These tools help the hotel in operation planning and control
The hotels operation are extremely departmentalised, cost were recognized into assorted unit/department and analyse to acquire information on public presentation, profitableness and by and big hotel fiscal place
The hotel utilize appropriate costing system like full soaking up costing, fringy costing, activity based bing which consequence in proper designation of the cost and profitableness of hotel division/ department/revenue country.
There will be demands for better cost control, increase gross revenues volume and growing potencies to better the hotel fiscal consequence.