Final Exam Study Guide
Final Exam Study Guide HTM 370
Popular in Managerial Accounting
Popular in Hospitality
This 3 page Study Guide was uploaded by Liz Hale on Tuesday February 3, 2015. The Study Guide belongs to HTM 370 at University of Massachusetts taught by Atul Sheel in Fall. Since its upload, it has received 300 views. For similar materials see Managerial Accounting in Hospitality at University of Massachusetts.
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Clutch. So clutch. Thank you sooo much Liz!!! Thanks so much for your help! Needed it bad lol
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Date Created: 02/03/15
Elizabeth Hale Accounting 370 Final Review CHAPTER 5 Ratios RevPar Revenue per available room combination of paid occupancy percentage and average daily rate room revenuesavailable revenues OR paid occupancy percentage ADR Current Ratio Ratio of current assets to current liabilities expressed as a coverage of so many times Return on Investment gROA2 ratio providing indicator of profitability of a hospitality operation by comparing net income to total investment calculated net income total assets Multiple occupancy number of rooms occupied by more than one guest number of rooms occupied by guests double occupancy Paid occupancy measure of management s ability to efficiently use available assets gross operating profit ratio Financial leverage the use of debt in place of equity dollars to finance operations and increase the return on equity dollars already invested Return on Owner s equitv ROE ratio providing general indicator of the profitability of an operation by comparing net income to the owner s investment net income average owner s equity DebtEquity ratio compares the debt of a hospitality operation to its net worth owner s equity and indicates the operation s ability to withstand adversity and meet its long term obligations calculated total liabilities total owner s equity Inventorv turnover ratio showing how quickly a hospitality operation s investment is moving from storage to productive use calculated cost of food or beverage average food or beverage inventory Acid test ratio ratio of total cash and near cash current assets to total current liabilities Operating efficiency group of ratios that assist in the analysis of hospitality establishment operations Operating ratio help management analyze a firm s day to day operations examples departmental revenues as percentage of total revenue expenses of revenue etc Want to see operating ratios high 20 minimum on food cost but average of 30 40 is too high I what matters is how much money you are getting if you are making a high profit with a 40 food cost then it makes sense for you Beverage cost is much lower than food cost labor cost is the killer and hardest to manage RevPac revenue per available customer total revenue number of guests Sales mix rooms revenue total revenue or specific department total revenue ratios tell you what the issue is not the solution Limitations length of time shows symptoms not solutions find solution by looking at causes Depreciation singlestraight line vs accelerated straight line is fixed amount each year accelerated has chart with changing rates year to year and higher depreciation rates in the earlier yearsperiods Asset turnover accelerated depreciation will have higher asset turnover in earlier years compared to straight line ACRS accelerated rate change I higher the turnover the higher the assets will appear to be Du pont system of analysis examines financial strengths and weaknesses of a business by studying different ratios collectively and by exploiting the interrelationships between ratios CHAPTER 6 Basic Cost Concepts Cost is how much you spend to get assets anything bad against your business is a cost increase in liability and reduction in assets cost is an expense that leads to a negative effect on a specific assetliability account of a firm cash is also a current asset I types of costs variable fixed costs unit each additional unit of something Fixed costs remain constant relative to the sales volume in the short term example rent insurance leases etc Marginal costs sale of selling each additional unit marginal fixed cost or fixed cost per additional unit is a decreasing function Discretionary fixed costs do not affect the selling capacity of a business capacity fixed costs relate to a firm s ability to provide goods and services ex leases mortgages donations etc Variable costs change with sales volume marginal variable cost or variable per unit remains constant regardless of sales volume Step costs are constant within a range of activity but different among ranges of activity example supervisors in housekeeping 1 person can only clean so many rooms so they hire certain amount of housekeepers depending on number of rooms graph looks like step because it is part fixedpart variable also called mixed cost Mixed costs are mix of both fixed and variable costs telephone expense building lease repair and maintenance 0 Variable cost vc per unit units sold variable cost per unit is slope of line cost forecasting highlow two point method two points from busiest point and weakest point bases estimation on data from only two extreme points assumes extreme periods are reasonable re ection of the high and low points for each year run scatterplot for more data points shows more trends example as occupancy increases cost increases y is dependent variable and s is independent variable more useful than highlow method regression analysis is mathematical approach to fitting a perfect straight line to the data points on a scatter plot line is determined by minimizing sum of squares of distance error between actual and predicted point of the regression line squares error terms and minimizes then to give line of best fit determination of slope intercept and other details most precise of the three forecasting techniques Indifference point level of activity at which a given period s cost is the same under both fixed and variable arrangements 0 Direct and indirect costs direct costs directly relates to the sales volume operation of a business all undistributed costs are indirect manager s salaries rent mortgage interests overhead costs I controllable variable in nature controllable costs manager can exert in uence key in decision making supplies housekeeping etc decisions have to be accurate differential costs costs that differ between two alternatives in a given decision making situation ex if buying a car and looking in between two cars how much is maintenance mileage etc Sunk costs past cost irrelevant to a given decision making situation doesn t apply to decision not a furturistic cost relevant cost is a cost that must be considered in a given decision making situation if two cars have different costs relevant in deciding which to buy Opportunity cost is best forgone opportunity in decision making situation for decision to be rational opportunity cost should be less than the value associated with the outcome of the decision standard cost is projected always unit based marginal cost is each additional unit sold illustrations based on decision making CHAPTER 7 Cost Volume Pro t Analysis 0 Breakeven point the level of sales volume at which total revenues equals total costs sensitivity analysis is the study of the CVP s model s dependent variables such as rooms to changes in one or more of the model s independent variables such as selling price Cost volume profit analysis set of analytical tools used by managers to examine the relationship among various costs revenues and sales volume in either graphic or equation form allowing one to determine the revenue required at any desired profit level Contribution margin sales less cost of sales for either an entire operation department or for a given department represents the amount of sales that is contributed towards fixed costs andor profits Operating leverage extent to which an operations expenses are fixed rather than variable Cvp analysis is a management tool that uses the relationship between cost sales volume and profits for decision making graphic or equation form Assumption and limitations for specific given period does not keep in mind subjective factors just revenue and cost intangible factors are ignored Variable cost ratio portion of the revenue dollar used to pay all variable costs equation variable cost total revenue shallower the revenue line the better it is for company Contribution margin revenue variable costs FC Ib portion of total revenue used to cover fixed costs and profits CM ratio cm revenue cm per unit sales price per unit or 1 VCR portion of each revenue dollar used to cover fixed costs and or profits or that of sales revenue Weighted average Contribution margin ratio CMRw is weighted to re ect the relative contribution of each department to the establishment s ability to pay fixed costs and generate profits sum of sales mix CMR or total revenue total variable cost total revenue Ib is profit before tax Breakeven has lb of 0 revenue fixd cost CMRw CHAPTER 8 Pricing Prices in uence profitability impacts revenue and bottom line factors essential for price determination demand is price elasticity Room price cost of operating competitors price how much profit you want to make I goals and objectives season affects what price you can make for a certain time of year where demand is more customer centric Demand usually sets upper limit of the price the most a customer is willing to pay price elasticity of demand AqQoApPo I Aq is change in quantity demanded Qo is base quantity demanded Ap change in price P0 is base price varies for each market segment Yield management is demand based pricing of rooms costs set the lower limit of the price to break even objectives provide framework for pricing competition provides benchmark Ingredient cost or markup approach product cost prime or nonprime cost markup selling price markup designed to cover all nonprime costs Pricing decision for rooms 1 for every 1000 rule if you spend 100000 on a room selling price is 100 price is set to cover all costs and desired profit cased on certain room sales expectations in hubbart formula Plowhorse has high popularity but low contribution margin have to raise prices or lower costs dogs have low popularity and low contribution margin and they need to be taken off the menu puzzles have high profit and low popularity make them specials stars are high profit and high popularity don t need to do anything with them Profitability index total gross margin of dishes sold on side and 70 dishes sold number of menu items
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