In Collaboration with

Module: Accounting and Finance

Assignment Question
MBA Year 1 Semester 2

Lecturer: Mr. Krishna Guzadhur

Whitefield Business School

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Instructions
The purpose of this assignment is to provide you with experience in answering a number of
questions based on the Management Accounting Modules in this course.

Instructions:

Answer ALL questions.

Read each question carefully.
Answer only what is asked for.
Please type your responses or write clearly.

Summary of
assignment:

Question

Type/Topic

Marks

Cost-Volume-Profit Analysis

16

Relevant Costs

20

Standard Costing Variances

24

TOTAL

60

Question 1:
Broadcom Hotel opened its doors on 1 January 2013 and offers three types of rooms to its
clients singles, doubles and triples. This hotel has 250 rooms.
The table below provides you with details on room sales for the year ending 31 December
2013.
Room type
Proportion of sales
Rate per night
Single
50%
Rs5,400
Double
30%
Rs6,500
Triple
20%
Rs7,000
.
Annual fixed cost for the hotel is estimated at Rs110 million per year. Variable cost is Rs
3,000 per room irrespective of the room type.
Assume that the above proportion of rooms sold will apply to all the questions set below
Required:
a) Calculate the number of (i) Single, (ii) Double & (iii) Triple rooms to be sold to break
even?
(6 marks)
b) Calculate room nights to be sold for each category (single, double & triple) to
achieve a budgeted profit of Rs80M. What would be the occupancy rate for each
category to achieve the target profit?
(6 marks)

c) Given that the average room rates could be increased by 5%, through aggressive
marketing that will cost an additional Rs30M to Broadcom Hotel, calculate the
number of rooms to be sold from each category to achieve a profit of Rs95M.
(4 marks)

Question 2:
Part a:
La Boutique Hotel is actually operating at 70% capacity and is under severe
financial pressure. This hotel has 150 rooms and each room is being currently sold
at Rs 5,800 per night. It has just received an offer from a tour operator who is
planning to book 1,600 room nights for the month of April 2014 at a rate of Rs4,500
per night.
The variable cost per room night is Rs 3,500. The fixed cost for the hotel for April
2014 is projected to be Rs15M.
Required:
(a)
Using figures from above, advise management whether or not it should
consider the offer from the tour operator.
(6 marks)
(b)
List 2 other non-financial factors that should be considered before taking the
final decision
(4 marks)
Part b:
Summer Resorts has four hotels in Seychelles . Estimated cost and revenues for next year
for each hotel are as follows:
Flamingo
Swan
Kestrel
Peacock
Total
Sales
Rs450M
Rs375M
Rs300M
Rs250M
Rs1375M
Revenue
Variable
Rs250M
Rs175M
Rs250M
Rs220M
Rs695M
cost
Fixed cost
Rs80M
Rs50M
Rs75M
Rs40M
Rs125M
Profit
Rs120M
Rs150M
(Rs25M)
(R10M)
Rs235M
Note: Management informs you that there is a specific fixed cost of Rs15M for each
outlet. Remaining fixed cost can be considered to be general fixed cost as it
represents allocation of common head office cost.
Advise:
(a) Whether management should close any of the above hotels based on financial
calculations. You should show your calculations clearly and depict the impact of
your decision on overall profits of Summer Resorts.
(6 marks)
(b) Assuming that based on your financial calculations, you recommend Sunshine
International to close one hotel. Briefly describe three implications of such a
decision.
(4 marks)

Question 3:
Le Gourmand provides banqueting service and given below is the companys budget in
respect of December 2005.
Rs. 000s
Sales of Food & Beverages
25,000 covers@ Rs 185.00
Less Food Cost 12,000 Kgs @ Rs 64.00
Beverage Cost 14,000 lts @ Rs. 15.00

Rs. 000s
4,625

768
210
978

Labour 19,000 hours @ Rs. 32.00 per hour

608

Variable overheads

280

Fixed Costs

320
2,186
2,439

Standard net profit

The actual figures were as follows:Rs. 000s
Sales of Food & Beverages
26,000 covers @ Rs 184.00
Less Food Cost 14,000 Kgs @ Rs 61.00
Beverage Cost 16,000 lts @ Rs. 17.00

Rs. 000s
4,784

854
272
1126

Labour 20,000 hours @ Rs. 33.00 per hour

660

Variable overheads

290

Fixed Costs
Actual net profit
Part A:
Calculate the following variances:
a) Selling Price Variance
b) Sales Volume Variance
c) Food Price Variance
d) Food Volume Variance
e) Beverage Price Varaince
f)

Beverage Volume Variance

g) Labour Rate Variance

h) Labour Efficiency Variance
i)

Variable Overhead Cost Variance

380
2,456
2,328

j)

Fixed Overhead Cost Variance

(2 marks for each variance calculated correctly total 20 marks)

Part B:
Prepare an appropriate variance report reconciling the standard and actual profit.
(4 marks)