You have been appointed as the new Management Accountant to Chez-moi hotel chain. Chez-moi is an established hotel chain with 20 hotels in the UK alone. It is targeting customers in the lower high-price range, differentiating themselves as boutiques hotels in convenient tourist locations. They have gained their excellent reputation based on the quality of their services and homely feeling that characterises each of their hotels. Each hotel has its own décor and ability to tailor their menus and customer offerings depending on location and space available. However, due to increased competition and lower levels of demand due to the Covid-19 pandemic, there is a constant need for Chez-moi to monitor their costs. Each hotel also prepares its own budget which is then consolidated at the group level. At the end of each quarter, the manager receives a statement comparing actual quarterly performance against budget. Chez-moi currently uses a rolling-budget with the figures for the next quarter being based on the numbers achieved in the previous quarter. The statement for the most recent completed quarter is as follows:
Actual Budget Number of nights booked 6000 1800 £ £ Revenue 220,000 198,000 Costs: Food and drink (breakfast included) 25,000 22,500 Staff wages 75,000 66,000 Heat, light and power 8,100 7,500 Rent, rates and other overheads 12,000 12,000 Notes: (i)Rent, rates and other overheads are apportioned by the head office based on annual fixed costs (ii)All other costs are treated as variable costs Required: Question 1. Produce a management report to the Board of Directors outlining the following: 1. Chez-moi is currently using cost (full cost)-plus to determine the price of the rooms. Please discuss the advantages and disadvantages of cost-plus and its suitability for Chez-moi. If cost-plus is not the best pricing strategy, please justify why and suggest a better pricing model. Short-term decision making. (20 marks) 2. Due to the Covid-19 pandemic, Chez-moi has been approached by a local Council asking if they would be willing to rent spare rooms to accommodate rough sleepers. The Council is willing to pay £40/per room/per night for 100 nights. Question 2. a) Prepare a statement showing the impact that accepting the offer would have for the company (apply to budget data); (5 marks) b) Discuss which qualitative factors (minimum 4 factors) Chez-moi should consider when deciding whether to accept the offer from the Council. (7 marks) c) What is the minimum price that Chez-moi could accept without reducing its operating profit. (3 marks) d) Please advise Chez-moi on whether they should accept the offer from the Council or not based on the results above. (5 marks) Total 2 Question 2 – 20 marks 3. Discuss the advantages and disadvantages of Activity Based Costing (ABC) and critically evaluate whether it would be suitable for Chez-moi. Make reference to the current overhead absorption system, its suitability, advantages and limitations. (20 marks) 4. Budgeting a) Prepare a flexed budget for the last reporting period; (5marks) b) Discuss whether rolling budgets are most appropriate for the hotel chain; (7marks) c) Discuss the participative approach to budgeting and its advantages and disadvantages to the hotel chain; (7 marks) d) Define beyond budgeting and discuss its suitability to Chez-moi. (6 marks) Total Question 4 25 marks
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