BIZ201 accounting for decision making

Subject Code and Title 	 BIZ201 Accounting for Decision Making 
Assessment Case Study Part B 
Individual/Group 	Group
Laureate International Universities

Learning Outcomes

  1. Explain and evaluate the role and importance of financial information in business decision making
  2. Apply relevant accounting concepts to simple business scenarios
  3. Apply basic costing and budgeting techniques to business decision making
  4. Apply capital budgeting techniques to capital investment scenarios

Context:

This assessment is aimed at consolidating knowledge from Modules 1-6. By prescribing this assessment, you are able to reflect on your understanding of the importance financial information in business decision making and be able to apply costing and capital budgeting techniques to business scenarios like given in this case study.

Crystal Hotel Case Study

Crystal Hotel Pty Ltd introduced in Part A of the Case Study has a quite flat organisational structure as per the chart below. The General Manager oversees each departmental manager directly.

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You have been offered an internship opportunity as a group to show your skills and how you could be of benefit to the organisation. At the end of the internship, there may be an employment opportunity for the members of the group.

You need to choose as a group whether you would like to take on your internship in the Sales and Marketing Department or Functions and Events Department.

Based on your choice, complete the section of the assessment related to the department you have selected.

Option 1 - Sales and Marketing Department Assessment

As per information provided in part A of the case study, the owners of the Crystal Hotel are planning to renovate and refurbish the hotel. A part of the redevelopment plan is to build a Wellness Centre on the rooftop of the hotel. The Sales and Marketing Manager volunteered to help with this project. He is a strong believer that it would bring the hotel up to the next level and that it would attract additional customers to the hotel.

Due to the location of the hotel being within proximity to the business district of

Parramatta, he believes that the Wellness Centre should be opened to external clients as well. He suggests employing a full time, in-house trainer and a part-time dietician. He believes selling monthly membership including training sessions and dietary advice will attract additional clients who may then promote the hotel to their employers for accommodation and other business-related services.

The marketing manager wants to be well prepared to support the Wellness Centre project and needs help with few tasks from your team.

TASK 1

As part of the Wellness Centre Project, the plan is to build a small gym on the rooftop of the hotel. You have been appointed to help the Sales and Marketing manager to make decision whether to rent or buy specific equipment items. The required items are included in Appendix 1 together with costing information. The budget for the required equipment is $51,000 for the life of the equipment.

Regarding the buying of the equipment, the useful life is predicted to be 3 years after which replacement is needed. At the end of its useful life, it is expected to be sold for the residual value of 20% of its original cost. A servicing contract will be drawn up with a company to take care of the equipment. Servicing will add 3% to the cost each equipment. This is to be paid separately as one lump sum at the beginning of the term and will last 3 years.

For the renting option, choose the one that is the most beneficial for the business. The rent is expected to rise by 10% each year. The rent is paid at the beginning of each period. Servicing of the equipment is included in the rent.

REQUIRED

The manager would like to know whether it would be better for the Hotel to buy the required equipment or to rent it. Explore both options and make a recommendation. Take into account the time value of money at the discount rate of 7%. Include advantages and disadvantages of each option and justify your choice.

TASK 2

The Sales and Marketing Manager has an idea of creating monthly memberships for external visitors that he would like to explore further. He is thinking to create two types of membership options. A Basic Membership which would include access to the gym, sauna and pool and it would cost clients $40 a week. A Full Package Membership would additionally to the access include a one-hour weekly session with the in-house personal trainer and a dietician consultation once a month. Clients would pay $81 per week for this type of membership.

He believes that an initial investment into promoting the centre would be $53,373 and subsequent cost of continuous promotion would be $808 per month.

Based on his calculations he believes offering the membership to the external clients would generate total revenue of $151,000 in the first year increasing by 10% every year after that. The in-house trainer is expected to cost the hotel $6000 per month and the services of dietician additional $1700 per month and both are expected to increase by 4% each year.

REQUIRED

Calculate the net present value of the external membership project over the next 3 years period. Use yearly basis for your calculations. The estimated cost of capital for the hotel is 7%. Assume 30% company tax in Australia when determining the values of the after-tax net cash flow for each year.

Based on your analysis would you recommend accepting the project and offer the membership to the external clients? Explain the basis for your recommendation.

TASK 3

Once the Crystal Hotel Wellness Centre is ready for opening, it will need to be promoted to existing and potential new clients. There is already an opening event (luncheon) planned which is handled by the Functions and Events Department. The overall budget for promoting the opening of the centre is $35,000. The opening luncheon is budgeted to cost

$23,000.

Your team has been appointed to plan additional promotional activities for the remaining $12,000. The budget is aimed for the promotion of the opening of the centre only.

Continuous promotional activities as well as online advertising will be handled separately.

The marketing team has done initial research and the promotional activities to be considered are listed in the Appendix 3. Negotiated pricing has been included as well.

REQUIRED

Choose suitable promotional activities from the list provided to you and create a promotional budget for the Crystal Hotel Wellness Centre opening. Justify your choice of activities.

TASK 4

The GM has suggested Crystal Hotel to run a promotion to boost the occupancy rates of the hotel. They aim to charge $120 per person for one night’s accommodation including buffet breakfast. The variable cost per person is $35 that includes food, cleaning and utilities. Fixed costs are $40,000 per year that include council rates rate, water rates and land taxes. There are 100 rooms in the hotel and the hotel operates all year round. In general, without any promotions, the normal occupancy rates are 70% throughout the year.

REQUIRED

They have asked for your expertise to carry out a CVP analysis for this promotion. Calculate the following:

  1. The contribution margin per service (a unit of service is one night’s accommodation for one guest).
  2. The contribution margin ratio.
  3. The annual break-even point in number of services and in dollars of service revenue.
  4. The number of services required to earn a target net profit of $150,000 for the year (ignore income taxes).
  5. Analysis the importance of CVP analysis and comment on effectiveness of this promotion based on your calculations.
  6. Some of the marketing team suggest that the room charge for the promotion should be raised to $150. Comment on whether this should be done and what effect it will have on reaching the target profit.

Option 2 - Functions and Events Department Assessment

TASK 1

As part of the refurbishment project, the Crystal Hotel would like to introduce fresh plants into the lobby area, function and conference rooms. The management has however, dilemma on whether to hire a professional company that will deliver the plants and maintain them or whether to purchase the plants themselves and hire a gardener for the maintenance of the plants. It is estimated that the plants would need to be replaced every three years. From experience, contracting a gardener to take care of the plants would cost the hotel $230 per week. For simplification, purposes assume the gardener’s invoice is paid at the end of each year.

The list of the required plants together with costing is included in the Appendix 2 of this document. The hiring contract requires payment at the beginning of the year for the full year.

REQUIRED

Compare the two options and make recommendation to the Hotel on whether to hire or purchase the plants. Take into account the time value of money at the discount rate of 8%. Include advantages and disadvantages of each option and justify your choice.

TASK 2

As part of the improvement process, the hotel would like to invest into an event management software package that would help to manage the events side of the business. The hotel found a suitable software supplier. The software package will significantly improve event management through streamlining processes and decreasing the time spent on booking and quoting events. As a result of the capital investment, an increased revenue and higher efficiency is expected regardless of the type of financing of the software package. The expected useful life of the software package is three years.

Two payment options have been offered to the hotel. The first option is to pay a one-off licence fee of $7,100 upfront and after that, an upgrade fee of $250 a year increasing by 4% every year paid at the end of each year. The second option is a subscription fee of $250 per month increasing by 3% each year paid at the end of each year, there is no upfront payment.

REQUIRED

Compare the two options of financing the software package over the expected useful life of the software. Make a recommendation on which option is financially better for the Hotel.

Provide explanation for your recommendation. Take into account the time value of money and the estimated cost of capital of 9% p.a.

TASK 3

As part of the promoting the Crystal Wellness Centre, your team has been appointed to help to organise the Crystal Hotel Wellness Centre Opening Luncheon. The hotel is expecting 300 guests to attend the event. Your team has been given a list of resources that need to be outsourced that is included in the Appendix 4 of this document. The Hotel Restaurant will provide the food and beverages and the price is included in your list. Casual staff will be hired by the hotel at the rate given to you in the Appendix 4. The Audio-Visual System and Staging are provided internally and do not need to be budgeted for.

The rest of the required items will need to be outsourced. You are expected to find suitable suppliers online and to complete the event costing. In terms of the entertainment, your team needs to choose an appropriate supplier for this type of event.

The gift hampers are to be given to the hotel’s long-term corporate clients. Additionally, every visitor will receive a small promotional gift. While the event is planned to last for three hours, the chair covers are required to be hired for 5 hours in total. The overall budget for the resources listed is $16,000.

REQUIRED

Your task is to do an online search of appropriate suppliers in order to complete the event costing. All calculations need to be included in the Excel Workbook and the summary of the costing provided in the Business Report as well. Provide references to the sources of the quotes and prices you have based the costing on. All costing must be done from online resources without contacting suppliers directly as this task is purely for the assessment purposes. Links to the supplies used need to be provided as part of the reference list.

TASK 4

Crystal hotel has accepted a corporate meeting to take place in its conference room. They are charging $120 per person that includes catering. The variable cost per attendee is $40 that includes food, cleaning and utilities. Fixed costs of $20,000 include hiring some furniture and equipment from an outside vendor. The conference facility can hold a maximum of 800 people and early projections suggest it will be fully booked.

REQUIRED

They have asked for your expertise to carry out a CVP analysis for this meeting. Calculate the following:

  1. The contribution margin per service (a unit of service is one seat for one attendee).
  2. The contribution margin ratio.
  3. The annual break-even point in number of services and in dollars of service revenue.
  4. The number of services required to earn a target net profit of $65,000.
  5. Analysis of the importance of CVP analysis and comment on effectiveness of this meeting based on your calculations.
  6. The marketing team has suggested a gift bag be given to each attendee at the end of the conference which will help promote a positive lasting impression of the hotel. The gift bag will add an additional $5 per person to the variable cost. Comment on the implications and make recommendations for this suggestion keeping in mind the target profit.

Teamwork

A significant aspect of this assessment task is your ability to work and contribute to a team. It is recommended that before you even begin the actual work of the assessment, that your group define your working parameters. This involves establishing the:

Group Expectations:

Roles and Responsibilities:

§ Understanding the assessment task

§ Defining how much time is needed

§ Where and when the group will meet

§ What role each person will play

§ What assessment outcomes

participants are aiming for

§ Facilitator – leads the discussion, making sure that all group members are contributing to the discussion.

§ Scribe – takes notes from the meeting and sends them to all members

§ Collator – pulls all the work together and submits

It is strongly advised that all team members work together to produce the final outcome. This means that everyone will:

  • Perform all calculations and
  • Equally contribute to the written aspects

Along with your written submission, a separate Peer Evaluation Form will be completed by all group members. Your final scores on the assessment will be adjusted to reflect how you performed in your group. For example:

Group Assessment Score

Peer Evaluation Feedback Score

(0-100%)

Final Score

85%

0 – Fails to contribute or participate. Hinders the group process

0%

85%

50% - Some participation. Limit contribution. Carries some of the workload

42.5%

85%

100% - Full participation. Carries more than their share of load. Helps guide the team

85%

The Peer Evaluation Form must be completed individually and will not be disclosed to your team members. This form is to be sent to your Facilitator directly and not uploaded onto the learning portal.

Title Page – including subject name, assessment title, group members names, date

Executive Summary - An executive summary provides a succinct summary of the content within the report. It presents information in such a way that readers are able to understand the intention and key elements of the report without having to read the entire document. This section is not included in the word count

Table of Contents – A summary of the sections and pages numbers

Introduction - The introduction sets the scene and provides context for the aim. It provides background to the issues being addressed only

Main Discussion – (Rename the headings/sub-headings to reflect your report). This section should provide information regarding the analysis you undertook addressing the key deliverables ie Tasks 1 –

Conclusion - The conclusion restates the aim then provides a brief and concise summary of the discussion to demonstrate that the aim of the report has been achieved. No new information is to be included in the conclusion

Recommendations - Recommendations represent the next steps derived from the report. For example, if your report concludes that a new equipment is required to address for purchase then the next steps will include obtaining finance to purchase the new equipment and mobilising a team to explore options for layout, signage, instructions for use etc

References - Please use the correct APA referencing style and list in alphabetical order. It is recommended that you use reference management software such as EndNote or Mendeley to make the job of referencing simple and straightforward. Remember, every factual statement in your report will require a reference.

Appendices - This is where you provide supporting material which is unsuitable for inclusion in the body of the report, but still has some value to contribute to the report.

APPENDIX 1

GYM EQUIPMENT REQUIREMENTS

Treadmill

Quantity required: 4

Hire Price 3 months: $697

(per item) 6 months: $1141

12 months: $1970

Purchase Price

(per item): $6057

Elliptical Trainer

Quantity required: 3

Hire Price: 3 months: $379

(per item) 6 months: $555

12 months: $1010

Purchase Price

(per item): $4039

Exercise Bike

Quantity required: 5

Hire Price: 3 months: $351

(per item) 6 months: $530

12 months: $904

Purchase Price

(per item): $3332

Rowing Machine

Quantity required: 2

Hire Price: 3 months: $278

(per item) 6 months: $455

12 months: $838

Purchase Price

(per item): $2726

APPENDIX 2

PLANTS REQUIREMENTS

Zamioculca

Zamiifolia

(Zanzibar Gem) Quantity required: 20

Hire Price 12 months: $76

(per item)

Purchase Price

(per item): $40

Raphis Excelsa

Hire Price 12 months: $275

Quantity required: 10

(per item)

Purchase Price

(per item): $136

Howea Forsteriana

(Kentia Palm)

Quantity required: 10

Hire Price 12 months: $199

(per item)

Purchase Price

(per item): $57

Chamaedorea

Elegans

(ParlourPalm) Quantity required: 30

Hire Price 12 months: $218

(per item)

Purchase Price

(per item): $66

APPENDIX 3

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APPENDIX 4

Resources

Quantity

Chair Cover Hire - Black Lycra with Aqua & Hot

Pink Lycra Bands

300 pieces

Gift Hampers

10 pieces

Open Entertainment

3 hours

Balloon centrepieces

30 pieces

Guest Gifts

300 pieces

Food Based on $30.08 per person (GST NA)

300 people

Beverage based on $9 per person (GST NA)

300 people

AV system and staging

Provided internally

Event Staff Rate $22/hour

GST Included in Rate

70 hours

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