# ACC101 Accounting for Decision Making

a) Question 9.45 on the Dorquay Hotel

Calculate the budgeted room revenue for each of the three months

The following table presents the budgeted room revenue for each of the three months:

 December January February Rooms available (a) 20 20 20 Occupancy rate (b) 90% 95% 85% Estimated rooms sold (c) 18 19 17 Estimated room rate (d) \$180 \$198 \$198 Budgeted room revenue (c*d) \$3240 \$3762 \$3366

Working Note:

Budgeted room revenue for December:

Total rooms = 20 rooms

Occupancy rate = 90%

Average room rate = \$180

Rooms occupied = Rooms available * occupancy rate (Rutherford and O’Fallon, 2007)

= 20* 90%

= 18

Budgeted room revenue = rooms occupied * average room rate

= 18*\$180

= \$3240

Budgeted room revenue for January:

Total rooms = 20 rooms

Occupancy rate = 95%

Average room rate = increased by 10 per cent

= \$180 (1+10%)

= \$198

Rooms occupied = 20* 95%

= 19

Budgeted room revenue = 19*\$198

= \$3762

Budgeted room revenue for February:

Total rooms = 20 rooms

Occupancy rate = 85%

Average room rate = no further room rate increase

= \$198

Rooms occupied = 20* 85%

= 17

Budgeted room revenue = 17*\$198

= \$3366

Discuss how the management of the Dorquay Hotel could have estimated the occupancy rate.

The management of the Dorquay Hotel could have estimated the occupancy rate by using forecasting method including time series and judgmental. In time series method, the management could have used historical data on occupied rooms in each month in previous years (Kotas, 2014).

It could have been useful for the firm to calculate the occupancy rate by dividing it by the available rooms in particular month. At the same time, the management could have used the judgmental method of forecasting by taking expert opinions and conducting the market surveys (Sturman et al. 2011). It could have been useful for the firm to determine the trend of hotel demand and estimate the occupancy rate based on current perspective.

b) Question 2.57 on a proposal by a vendor

1. Do you think Mr Smith should take the trip? Outline any ethical concerns involved.

There are some ethical concerns related to integrity, independence and objectivity. It can be determined from the case that Dogto Ltd will pay all expenses on trip to Los Angeles. Trip can be considered as a gift given to Mr. Smith to get his favour in selecting its software.

Offering to take family to trip seems to show that the trip is only as a gift to get favorable decision. Therefore, it can influence the software chosen by Smith because he may feel obligated to Dogto Ltd. during decision making (Knechel and Salterio, 2016).  It may cause conflict of interest and lack of independence. So, Mr. Smith should not take the trip.

However, this offering may be beneficial for Practical Solutions Ltd to save money and make a better decision if Mr. Smith does not get influenced by the offering.

2. What would be the advantages and disadvantages to Practical Solutions Ltd of having an employee code of conduct? What measures might be included in such a code of conduct?

It is significant for the firms to have an employee code of conduct. The key advantage of having employee code of conduct to Practical Solutions Ltd is that the employee will be communicated about what the acceptable behavior is required by the company from the employee side.

At the same time, it would help the firm to develop trust and credibility regarding the business transactions. It will also be beneficial for the management to identify ethical dilemmas and develop professionalism in the business (Dogui et al. 2014).

However, it can be disadvantageous in terms of time consuming and costly in its development. In addition, it can be ineffective to cover all situations and make the employees confused to make decisions promptly.

The following measures might be included in such a code of conduct:

• Not allow the family to travel
• Make it mandatory for employee to spend time in another country with dedication to the task (Manroop, 2015)
• Set roles and responsibility for each employee
• Avoid real or perceived conflicts of interest arising from financial and business relationships

c) Question 10.32 on Chloe Enterprises considering next year’s budget

Group

1. Calculate the break-even in both dollars and units for 2015.

Selling price per unit = \$60

Variable manufacturing cost per unit = \$28

Variable marketing and distribution cost per unit = \$ 12

Total variable cost per unit = \$28+\$12

= \$40

Contribution margin per unit = selling price per unit – variable cost per unit (Drury, 2013)

= \$60-\$40

= \$20

Fixed cost = Annual Fixed manufacturing costs + Annual Fixed non-manufacturing costs

= \$120 000 + 360 000

= \$480 000

Break even in units = fixed cost / contribution market

= \$480 000/\$20

= 24,000 units

Break even in dollars = selling price per unit * break even in units

= \$60*24,000

= \$1,440,000

1. Calculate the margin of safety in both units and sales dollars.

Margin of Safety (in units) = Annual volume – B/E (units) (Garrison et al. 2010)

Margin of Safety (in units) = 35,000 – 24,000

=11000 units

Margin of Safety (Dollars) = 11000 units * selling price

= 11000 units * \$60

=\$660,000

1. Calculate the profit achieved in 2015 given the annual volume of 32 000 units.

Profit = sales – (fixed costs + variable costs) (Drury, 2013)

= (32000*\$60) – [\$480 000 + (32000*\$40)]

= \$1920000 – [\$480 000 + \$1280000]

= \$1920000-\$1760000

= \$1600000

1. Calculate the units that would need to be sold in 2016 to achieve the same profit as in 2015.

Profit = sales – (fixed costs + variable costs) (Birt et al. 2014)

1600000 = (x*60) – [(480 000-80000) + x*(40+4)

1600000 =60x – (400000+44x)

1600000 = 60x-44x -400000

1600000+400000 = 16x

2000000 = 16x

x = 2000000/16

= 125000 units

125000 units would need to be sold in 2016 to achieve the same profit as in 2015.

Individual Response

1. Would you recommend the change proposed in d. above? Explain

The change proposed in d above cannot be recommended because the firm will require for selling more units (125,000) to generate the same profit as in year 2015. It means the firm will need to make more efforts to generate the same profit that may reduce productivity. Therefore, it should not adopt the proposed changes.

References

Birt, J., Chalmers, K., Beal, D., Brooks, A., Byrne, S. and Oliver, J., 2014. Accounting: Business reporting for decision making. John Wiley & Sons Australia, Ltd.

Dogui, K., Boiral, O. and Heras‐Saizarbitoria, I., 2014. Audit fees and auditor independence: The case of ISO 14001 certification. International Journal of Auditing18(1), pp.14-26.

Drury, C.M., 2013. Management and cost accounting. Springer.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education25(4), pp.792-793.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.

Kotas, R., 2014. Management accounting for hotels and restaurants. Routledge.

Manroop, L., 2015. Human resource systems and competitive advantage: An ethical climate perspective. Business Ethics: A European Review24(2), pp.186-204.

Rutherford, D.G. and O’Fallon, M.J., 2007. Hotel management and operations. John Wiley & Sons.

Sturman, M.C., Corgel, J.B. and Verma, R. eds., 2011. The Cornell school of hotel administration on hospitality: cutting edge thinking and practice. John Wiley & Sons.