HOSPITALITY CONTROL II
HOSPITALITY CONTROL II RHIM 3322
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This 18 page Class Notes was uploaded by Lizzie Baumbach on Thursday October 22, 2015. The Class Notes belongs to RHIM 3322 at Texas Tech University taught by Kok Beng Goh in Fall. Since its upload, it has received 36 views. For similar materials see /class/226480/rhim-3322-texas-tech-university in Hotel Restaurant & Institution Mgmt at Texas Tech University.
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Date Created: 10/22/15
RHIM 3322 Hospitality Control II Course Author Sara Dodd Yourgmder my be di ferentfmm the author RllM 3322 features 0 3 hours credit 9 lessons each containing Introduction Lesson Objectives How to Proceed Discussion Practice Exercises and Lesson Assignment 1 final examination 0 1 textbook Prerequisite RHIM 3321 o All lesson assignments must be submitted via surface mail only RHIM 3322 v20 Published by Division of Outreach 8 Distance Education Texas Tech University BOX 42 191 Lubbock TX 794092191 Outreach 81 Distance Education Course Development Instructional Designer Sara Dodd Copyright 2006 by the Board of Regents for the College of Human Sciences acting for and on behalf of Texas Tech University Lubbock Texas 79409 All rights reserved TABLE OF CONTENTS Introduction to RHIM 3322 Ir r quot J Control II V Course Lessons Lesson One Comparative Income Statements and Ratio Analysis 1 Lesson Two Cash Flow and Retained Earnings Statements 9 Lesson Three Understanding Cost Concepts and Break Even 19 Lesson Four Pricing for Profits 11 Lesson Five 39 1 r quot Directions 41 Lesson Six Operating Widgets 43 Lesson Seven Acconnting Aspects of Food and Beverage Control 51 Lesson Eight Payroll and Fixed AssetAcconnting 57 Lesson Nine Cash and Revenue Control 63 Final Examination Dirertinns 60 Appendices Appendix A Answers to Practice Exercises 73 Appendix B Sample Exam Answer K W R introduction Hospitality Control II his course is a continuation of RHIM 3321 in which students learned the importance of managing financial information in order to control production costs and maximize profits The accurate collection analysis and reporting of a hospitality business s financial activity is crucial to its success indeed to its very survival In this course the student will acquire various tools to analyze the information presented in financial reports in order to make sound business decisions regarding planning budgeting and costing At the conclusion of RHIM 3322 the successful student should be course ObieCtiveS able to o analyze and interpret financial statements prepare and interpret cash flow statements define cost concepts calculate the break even point identify and define financial ratios calculate and interpret financial ratios prepare and interpret operating budgets calculate the value of food and beverage inventory using different methods identify and define accounting procedures for payroll fixed and other assets and cash and revenue control RHIM 3322 V20 Introduction v Textbooks and Materials Course Organization Grading Policy About the Author Texas Tech University The required textbook for this course is Schmidgall Raymond S David K Hayes and Jack D Ninemeier RestaurantFmancml Basics 2002 Hoboken NewJersey John Wiley 8 Sons Inc ISBN 0 471 21379 9 You will also need several sheets of four column ledger paper on which to do your assignments A sample of this type of paper can be found on page vii of this course guide if you wish you may photocopy it for your assignments Each lesson will include an introduction lesson objectives a how to proceed section discussion section optional practice assignments for self evaluation and a lesson assignment to be sent to the instructor for grading Each lesson assignment will typically be derived from both the assigned text reading and discussion materials in the course guide The course will be graded as follows Lesson Assignments 60 Midcourse Examination 20 Final Examination 20 In cases where the student s grade is borderline the quality of lesson assignments will be considered in determining the final grade Use four column ledger paper for most assignments A sample of this paper is provided in the course guide My name is Sara Dodd 1 am a native Texan born and raised in two small West Texas towns not far from Lubbock I received a BA degree from Abilene Christian University in 1980 and my MBA degree from Texas Tech University in 1994 I am currently working on my doctorate also at Texas Tech In addition to being an adjunct instructor in Policies 8 Forms Guide through the RHIM program I also serve as adjunct faculty in Lubbock Christian University s Department of Business vi Introduction RHIM 3322 v20 Outreach amp Distance Education My employment history is in a word diverse My job experiences range from working as a drama coach for a girls summer recreation program to serving on the legislative staff of a Texas state senator to developing information systems for IBM s internal accounting system at its subsidiary headquarters in New Zealand However for the past several years my focus has been on raising my family and volunteering in the community My husband Tim Dodd is an associate professor on the faculty of the RHIM department We have three children ranging in age from elementary school to college Through their various interests and activities my family spends most of our free time attending sporting events concerts andor PTA meetings When school isn t in session we enjoy traveling Our families live on both the east and west coasts of the United States as well as overseas so our trips to see them tend to be the focus of our family vacations My personal hobbies include reading music and gardening 1 derive great satisfaction from getting flowers and plants to grow in the semi arid climate of the South Plains I also enjoy being involved with our church and am currently working with the college group ministry I am glad you have chosen to enroll in RHIM 3322 and Ihope it will be a positive learning eXperience for you The nature of the material for this course makes it particularly important for students to be motivated and disciplined in working through the lessons in a timely and methodical fashion Good luck RHIM 3322 v20 Introduction vii one Comparative Income Statements and Ratio Analysis his lesson will cover more material than most of the other lessons IHtTOdUCtion and has a longer reading assignment than any of the other lessons Don t let that scare you The information contained in this lesson covers two general topics comparing financial results from two different accounting periods and using ratio formulas to give added meaning to financial results After completing this lesson you should be able to Lesson Objectives 0 create and understand comparative balance sheet income statements 0 compute analyze and interpret different kinds of ratios Make sure you have read the Introduction and Objectives for this HOW to Proceed lesson Survey read and take notes on Chapter 5 of your textbook Restaurant Financial Basics Read the Discussion section in this lesson It will help you understand as well as expand on what you have read in the text Complete the Practice Exercises on your own paper Check your answers with the answer key provided in Appendix A of this course guide hWMd RHIM 3322 V20 Lesson One 1 Discussion Texas Tech University Complete the Lesson One Assignment and submit it to Outreach 8 Distance Education according to the directions given in the Policies 8 Forms Guide Review your notes brie y every day until you complete the course After you have finished this lesson you may proceed to Lesson Two You will hopefully remember from RHIM 3321 that the balance sheet is one of the basic financial statements utilized by a hospitality business or any other business for that matter The balance sheet is structured according to this basic accounting equation Assets Liabilities Owners Equity Put another way Assets Liabilities Owners Equity Thus a correctly prepared balance sheet should demonstrate that the assets of the hospitality business equal or balance against the liabilities and the owners financial stake in the business And in reading the correctly prepared balance sheet the owners and other stakeholders should gain an accurate picture of the organization s financial health at a particular point in time Understanding the statement is crucial to financial decision making by management Comparative balance sheets give the hospitality manager an added tool in making effective use of financial information for business decisions Comparative balance sheets require the information from two consecutive periods of financial operations be shown in a balance sheet statement side by sidequot The difference between the two should be stated absolutely in dollar amounts and relatively the change between the two shown as a percentage The manager reads the changes horizontally meaning that each element of the balance sheet is considered independently of the other elements and only in relationship to its counterpart in the neXt reporting period That is accounts receivable in one month would be viewed only against accounts receivable in the neXt month instead of in relationship to current or total assets Commonsize balance sheets are a type of comparative balance sheet which presents the performance from two periods vertically That is the 2 Lesson One RHIM 3322 v20 Outreach amp Distance Education relationship of one element or sub category is expressed to its larger total category as the text shows cash to total assets or accounts payable to total liabilities and so on This relationship is calculated for both reporting periods and the results are shown side by side A 15 percent change in operating expenses between two months may not seem so significant when a common size balance sheet reveals that there is no change between the expenses to revenue relationship between the two months indicating that growth in revenue kept pace with increases in expenses Ratio analysis is another kind of comparative tool that enhances the hospitality manager s understanding of the organization s financial performance Ratios are simple mathematical expressions of the relationship between two numbers In and of themselves ratios indicate very little However when they are compared to numbers from other accounting periods industry statistics or a competitor s performance they become more meaningful Note that some ratios are computed using elements of the balance sheet while other ratios are computed with information from the income statement Also be aware that the Return on Owners Equity Ratio discussed on page 122 of your text is also commonly referred to as the Return on Investment ROI ratio One ratio that your text doesn t mention is the quick ratio The quick ratio also sometimes referred to as the acid test ratioquot is computed as Quick Assets divided by Current Liabilities Quick assets are defined as those current assets that are most readily converted into cash1 The easier and quicker it is to convert an asset to cash the more liquid it is said to be Quick assets include 0 cash on hand 0 short term investments 0 accounts receivable net of allowance for bad debts Inventory is essentially the only current asset not used in this ratio because of the difficulty inherent in quickly converting inventory to cash For this reason the quick ratio is a more stringent test of liquidity 1 Short Daniel G and Welsch Glenn A Fundamentals ofFinnncz39nl Accounting 6th edition Richard D Irwin Inc 1990 p 777 RHIM 3322 v20 Lesson One 3 Texas Tech University than the current ratio and it can be a useful ratio for hospitality businesses which typically have significant dollars tied up in inventory To summarize a good hospitality manager pays close regular attention to comparative balance sheets commonsize balance sheets and ratio analysis Failure to do so may mean for example that a trend in increasing labor costs is missed until the profitability of a restaurant is threatened or it may mean that too much attention is given to beverage cost increases without realizing that beverage revenue has also increased even more Or perhaps a rollercoaster pattern in the inventory turnover ratio isn t noticed until the kitchen staff realize that too much food is being lost to spoilage before it can be used These are just a few simple examples there are many more possibilities for missed financial cues that can be gleaned from timely accurate use of comparative balance sheets and ratio analysis Practice Exercise Use the following information to answer all practice exercise questions y l Current Assets Securities Accounts Current Assets Assets Furniture Assets Less Accurn Assets TOTAL ASSETS 4 0 Lesson One RHIM 3322 v2 0 Outreach amp Distance Education LIABILITIES Current Liabilities Note Payable 8000 Accounts Payable 5000 Wages Payable 8000 Total Current Liabilities 21000 Long Term Liabilities Mortgage 30000 Owners Equity Retained Earnings 1 1000 Common Stock 30000 Total Equity 41000 TOTAL LIABILITIES 8t OWNERS EQUITY 92000 Hotel Bubba Balance Sheet Year ended December 31 20X2 ASSETS Current Assets Cash 2000 Marketable Securities 5400 Accounts Receivable 6600 Inventory 6000 Total Current Assets 20000 Fixed Assets Land 25000 Building 52000 Furniture and Fixtures 29000 Total Fixed Assets 106000 Less Accum Depreciation 18000 Total Net Fixed Assets 88000 TOTAL ASSETS 108000 LIABILITIES Current Liabilities RHIM 3322 V20 Lesson One 5 Texas Tech University Note Payable 5500 Accounts Payable 8500 Wages Payable 12000 Total Current Liabilities 26000 Long Term Liabilities Mortgage 38000 Owners Equity Retained Earnings 14000 Common Stock 30000 Total Equity 44000 TOTAL LIABILITIES 8t OWNERS EQUITY 108000 Answer the following questions on your own paper When you are finished check your answers with the key located in Appendix A of this course guide 1 Prepare a comparative balance sheet for Hotel Bubba for 20X1 and 20X2 Based on the results what do you think would be an appropriate significance factor 2 Prepare a common size balance sheet for Hotel Bubba for 20X1 and 20X2 Based on the results what do you think would be an appropriate significance factor 3 Compute the following ratios using information from both 20X1 and 20X2 and explain what each one means for Hotel Bubba A Current ratio B Solvency ratio C Debt equity ratio 6 Lesson One RHIM 3322 V20 Outreach amp Distance Education Complete the following exercises on your own paper 1 Identify and define each ratio as provided in your teXt and discussion materials as follows A Classification B Formula C Usage and interpretation 2 Prepare a comparative balance sheet for the La Casa del Matador restaurant using the following information 20X2 20x3 515 515 Cash 31500 36300 Marketable Securities 32000 36000 Accounts Receivable 31100 35200 Food amp Beverage Inventory 22900 25600 LinensChina Inventory 15500 17400 Prepaid Expenses 10900 12500 Land 165500 165500 Building 685500 685500 Equipment 50700 56500 Furniture 54000 63000 Accum Depreciation 23200 21900 Accounts Payable 28200 29300 Notes Payable 35800 42000 Wages Payable 37400 39600 Mortgage Payable 325000 315700 Retained Earnings 200000 235000 Common Stock 450000 450000 Lesson One Assignment RHIM 3322 v20 Lesson One 7 Texas Tech University 3 Prepare a common size income statement for La Casa del Matador He using the following information 20X2 20x3 515 55 Revenue from food sales 560000 580000 Revenue from beverage sales 410000 440000 Cost of food sales 225000 225000 Cost of beverage sales 185000 191000 Payroll 233000 236000 Administrativegeneral 65000 67500 Marketing 40000 45000 Property maintenance 17500 18500 Insurance 25000 25000 Utilities 30000 33000 Property taxes 21500 22500 Depreciation 19500 17000 Interest 36000 36000 Income tax is 40 Calculate and interpret the following ratios using the informationresults from problems 2 and 3 A Accounts receivable turnover ratio for 20X2 Assume charge sales are 40 of total sales B Inventory turnover ratio for food and beverage in 20X3 C Profit margin ratio for 20X3 D Current ratio for 20X3 E Quick ratio for 20X3 F Food sales ratio for 20X2 G Labor cost ratio for 20X3 H Direct operating eXpense ratio for 20X2 1 Return on owner s equity ratio for 20X3 8 Lesson One RHIM 3322 v20
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