Cost Volume Analysis Assignment | Online Assignment

I have done the first part calculations , need to do the rest

Style of assessment:
Report style
Max. Word Limit:
1500 words.
Excluding calculations, which must be included in the Appendix.
Submission:
Your written report will be submitted via L@G thought assessment submission link.
Marking:
Your Individual Report will be assessed on the understanding of the key concepts and its applications in the context of each task.
Hurdle Statement
All students are required to complete the cover sheet.
Academic Integrity
Be aware that the lack of the coversheet submission leads to a deduction of 5% of the total report mark per day.
About the Task
All tasks are is based on the fundamental, theoretical and conceptional learning in this course.
You will work on a major project of interpreting the financial position or performance of a hospitality business. The audience for this project comprises potential investors, franchisees, lenders, suppliers and managers of the business.
Secondly you are required to assess the impact of changes in the operational environment affecting the financial performance of the business in the context of the CVP analysis and comment on pricing concepts.
Hint
1.Show the workings for Q2 in the appendix, as these are crucial to a fair evaluation of your assessment.
2.Use appropriate referencing and integrate primary resources1 where possible.
Important Note – Extensions:
If you have compelling circumstances you will need to apply for extension by emailing me with valid reasons and documentation before the due date.
Important Note – Late Submissions:
As per university policy for late assignment without prior approval:
– 10% (i.e. 10 marks) for every 24 hours that the assignment is late (not including weekends).
– A 100% penalty applies after 5 working days.
Formatting of word document.
Format: Times New Romans
Line Spacing: 1.5
1 A primary resource refers to the original source and not a source which provides a summary of a primary source. 1
7260THS
A3 Individual Case Analysis
Margins: 1cm (left)
3 cm (right)
2.5 (top and bottom)
Reference style: APA
Task Description
Assignment Components
The assignment comprises three tasks:
1.Financial Performance Analysis – Individual Business Level
2.Cost Volume Profit Analysis – Individual Business Level
3.Discussion Question
While this assignment provides you with insights into different financial measures relating to a range of different levels of the business and the decision-making, please be reminded that this is an individual assignment.
Note that this is a practical assessment that must demonstrate your ability to apply analytical and financial techniques and identify solutions to different managerial issues. Thus, in the following individual assignment it is more important that you demonstrate your ability to interpret the financial information in respect to its implication for the financial decision-making processes within the business.
Task 1
Based on your results from (A2), this task requires you to conduct a financial analysis of the ratio analysis conducted by your group in the previous assessment. You will need to provide reasoning for the change in the profitability and other key dimensions of the business and link these with implications arising for external stakeholder (shareholders, lenders, suppliers, employees) using these financial ratios to support their decision-making process. It is not adequate to simply indicate the directional change of these ratio changes across the two years.
Task 2:
In this task, you are required to analyse the relation of costs, forecasted sales volume and the overall performance, and provide a rational to explain which factors may influence the bottom line the most.
Your knowledge will be demonstrated in the successful application and interpretation of the key concepts to the business environment and the provision of appropriate recommendations. 2
7260THS
A3 Individual Case Analysis
Task 3:
Discuss the relevant statement provided in task 3. 3
Task 1: Performance Analysis Marks: 10
Document sources to be used2:
Hotel Businesses: Excel file with Balance sheet and Income Statement & previous results from Group Written Report A2.
Task Description:
You must analyse and interpret the change in the business performance using the ratio trend analysis by commenting on changes from one year to the other. Besides, this task requires you to interpret the implications resulting from your analysis for different stakeholder groups. Ensure to target the impetration to the respective stakeholder groups who are interested in the specific financial aspect of the business.
This task is based on your ratio results from assignment A2 task 2 pertaining to the different aspects of the business’ performance. The explanation of the rational for the changes in financial results is crucial to a high-quality outcome of your assignment.
Each member is required to analyse a different aspect out of the following 3
1.Manager’s perspective: Profitability
a.In this section you must cover the purpose of the ratio analysis from the general manager’s perspective and provide the reasoning for the change in the financial performance of the hotel. Thus, it must cover a concise analysis and comments of the change in the profitability from a manager’s point of view from a year-on-year perspective. The DuPont decomposition assist you to filter the individual components and identify the major influencing factors for the ROA for the different levels of the analysis. Ensure to breakdown your analysis to derive a clear picture of the cause for the changes and the implications for the business.
b.What are potential positive/negative implications resulting from structuring the manager’s bonus around the maximisation of the ROA/ROI.
2.Shareholder’s perspective: Profitability
a.This section must cover the purpose of the ratio analysis from the shareholder’s perspective and provide the reasoning for the change in the financial performance of the hotel. Thus, it must cover a concise analysis and comments of the change in the profitability from a shareholder’s point of view from a year-on-year perspective. The DuPont decomposition assist you to filter the individual components and identify the major influencing factors for the ROE for the different levels of the analysis. Ensure to breakdown your analysis to derive a clear picture of the cause for the changes and the implications for the business.
b.Discuss the notion that “financial measures focus on symptoms and not causes”.
3.Short-Term & Long-Term Financial Stability
a.This section must address the hotel’s ability to meet its short-term financial obligations and why this may have changed over the two years under consideration. You must outline which components mostly contributed to the change and the major users of this information as well as the implications for the business and the stakeholder.
b.You must discuss the long-term financial stability of your hotel in this section. Hence, comment on the change of the debt and borrowing capacity and the two major sources of funding. In addition, discuss the financial risk your business is exposed to due to the change in its debt structure. To appraise this risk, you may want to assess whether a long-term loan application to finance further expansions would likely be more successful in the current year relative to the prior year.
c.How could the notion of the backward orientation of financial measures limit the implication of your findings for the stakeholder’s future decision-making?
2 You find the excel file with correct ratio results in the assessment folder (A3). 4
TASK 1
Individual Hotel Level
Financial Performance Analysis
We
10 marks
These criteria cover how complete is the task 2 of the assignment. You must comment on the change of the ratios from one year to the other and interpret the implications resulting from your calculations. The rationale for the changes in financial results is crucial to a high-quality outcome of your assignment.
Thus, you should comment and judge how well all the hotel has performed on the aspects of profitability, and long-term and short-term financial stability. You must cover the reasoning for the change in the financial performance of the hotel, whether the hotel can meet its financial requirements over the short-run and why this may have changed over the two years under investigation. Lastly, identify the long-term financial stability and the extent of financial risk the business is exposed to due to its debt structure.
Weighting
Criteria
Excellent
Very Good
Good
Satisfactory
Unsatisfactory
60%
INTERPRETATION and DISCUSSION of the ratios
Du-Pont Decomposition
Clear identification and structure of the decomposition in the profitability analysis.
Reasonable identification and structure of the decomposition in the profitability analysis.
Inadequate identification of the decomposition.
Profitability
Manager’s / shareholder’s perspective
Insightful yet concise analysis of the change in the profitability from the management’ and shareholders’ perspective and the causes the trend.
Concise analysis of the change in the profitability from the management’ and shareholders’ perspective and the causes the trend.
Reasonable analysis of the change in the profitability from the management’ and shareholders’ perspective and the causes the trend.
Cursory analysis of the change in the profitability from the management’ and shareholders’ perspective and the causes the trend.
Inadequate analysis of the change in the profitability and the causes the trend.
Short-term Financial Stability
Insightful yet concise analysis of the change in the business ability to pay short-term obligations and the resulting implication.
Concise analysis of the change in the business ability to pay short-term obligations and the resulting implication.
Reasonable analysis of the change in the business ability to pay short-term obligations and the resulting implication.
Cursory analysis of the change in the business ability to pay short-term obligations and the resulting implication.
Inadequate analysis of the change in the business ability to pay short-term obligations.
Long-term Financial Stability
Insightful yet concise analysis of the change in the business ability to comply with long-term obligations and the resulting implications for their borrowing capacity and financial risk.
Concise analysis of the change in the business ability to comply with long-term obligations and the resulting implications for their borrowing capacity and financial risk.
Reasonable analysis of the change in the business ability to comply with long-term obligations and the resulting implications for their borrowing capacity and financial risk.
Cursory analysis of the change in the business ability to comply with long-term obligations and the resulting implications for their borrowing capacity.
Inadequate analysis of the change in the business ability to comply with long-term obligations.
5
30%
INDEPENDENT RESEARCH
(This section may require some independent research outside of the annual report to assist you with the crucial operational measures important for the business you are required to analyse.)
Comprehensive yet concise identification and discussion of the additional aspects regarding financial performance measures supported by independent and thorough secondary research.
Concise identification and discussion of the additional aspects regarding financial performance measures supported by independent and thorough secondary research.
Reasonable identification and discussion of the additional aspects regarding financial performance measures supported by independent and thorough secondary research.
Cursory identification and discussion of the additional aspects regarding financial performance measures missing independent and thorough secondary research.
Insufficient independent research used to identify and discuss the usefulness of other performance.
10%
PRESENTATION
Including use of English, following instructions, formation and referencing where appropriate (Formatting, e.g. using the grid to show calculations and results) formatting and referencing.
Overall good use of academic English, attention to detail in presentation and following instructions/referencing where appropriate.
Several errors, in either use of English, presentation and formatting and/or following instructions/referencing.
Inappropriate attention to detail resulting in substantial errors, either in either use of English, presentation and formatting and/or following instructions/referencing.
6
Task 2: Cost-Volume Profit Analysis (CVP) Marks: 20
Hospitality and tourism businesses experience high levels of sales volatility due to the cyclical and seasonal effects. This greatly affects the bottom line with some periods being more profitable than others. This task requires you to analyse how changes of the sales volume, prices and costs resulting from changes in contractual arrangements or seasonal price fluctuations affect the profit performance of the Hotel. The CVP analysis assists the general manager to understand a variety of relationships between costs, volume and profit drivers, and supports the decision-making regarding profit maximisation, supplier optimisation and the employment mix between full-time and casual staff.
Hint: The lecture notes provide great assistance to do the calculations how to account for double rooms, suites and breakfast contributions.
The Brisbane Hilton Hotel is part of the Hilton Group. As it just finalised constructions and will open for the first year, there is uncertainty about the profitability and the forecasted income statement items for the coming year. The 200-room hotel differentiates between the following two room types:
Double rooms
Suites
180 double rooms
25 square metres
Avg. selling price: $130/ per night
Room occupancy: 80%
Average of 1.5 guests per room throughout the year
20 suites
50 square metres
Avg. selling price: $180/ per night
Room occupancy: 60%
Average of 2.5 guests per room throughout the year
Breakfast information of double rooms guests
Predominately corporate travellers
80% of double room guests attend breakfast
Breakfast information of suite guests
Predominately romantic couples and families
50% of suites guests attend breakfast in the hotel
By experience of other similar properties in similar locations, the reservation desk sells twelve double rooms for every one suite sale (12:1). The breakfast is organised in form of a buffet and includes beverages. The hotel charges its guests $21 per breakfast package. While the variable costs per guest can be derived from the income statement. 7
Based on the last year’s performance, the manager forecasted the coming years income statement as follows
Income Statement
for the year ending 31st December 2020 (365 days)
Room related Sales Revenue
$7,621,200
Breakfast related Sales Revenue
$1,439,487
$9,060,687
Cost of Sales
Food (Breakfast)
$342,735
Beverage (Breakfast)
$205,641
Other supplies
$398,580
Total cost of sales
946,956
Gross Profit
8,113,731
Operating Expenses
Salaries and wages
$4,530,344
Marketing expenses
$480,000
Maintenance
$250,000
Depreciation for fixtures and fittings
$900,000
Total operating expenses
$6,160,344
Operating profit (EBIT)
$1,953,388
Interest Expenses
$540,000
Taxable income
$1,413,388
Tax expense (40%)
$565,355
Net income
$848,033
The food and beverages package comprise food and beverage costs average $5 and $3 per guest respectively. In combination with the breakfast price the contribution per breakfast can be derived3.
The other supplies expense are variable costs incurring $7 per room sold across. This average applies to double rooms and suites.
To address sales volatility throughout the year, the hotel engages in causal labour hire. Consequently, 70% of the total salary and wages expenses are fixed as these relate to the full-time staff, while the remainder relates to wages of casual labour hired during peak season and can be broken down per room.
Due to a commission-based incentive structure, 30% of the marketing expenses are variably associated with the room sales, while the remainder is fixed.
90% of the maintenance expenses relate to the ongoing maintenance contracts, which are paid to an outsourced business, while 10% relates to repair costs incurred per occupied guest rooms.
3 Hint: You can use the contribution margin from the breakfast as this information is provided similarly to the lecture notes.
8
Requirements
1.Provide an income statement in the contribution margin format for the forecasted year’s income statement above, and compute and interpret the contribution margin ratio (in percentage).
Hint: Do not consider tax and interest as variables or fixed operating costs. All costs above the operating profit need to be categorised in variable and fixed costs, but not the interest expense and tax.
2.Conduct a sensitivity analysis of the base case (using the data as provided above) to evaluate the impact of a change of the following variables on the contribution margin and operating profit (EBIT):
i.An increase and decrease in the sales volume by 10%.
ii.An increase in the room sales price by 10%.
iii.A decrease in the food and beverage costs by 10% though a change of the supplier.
iv.A decrease in the full-time salaries and wage rate costs by 10%.
(Hint: Consider each case as an isolated effect and quantify it in percentage changes.)
3.Provide a recommendation to increase the profitability in the long-run under the considerations of your results in (2), consider quantitative and qualitative factors.
4.Compute the break-even number of double and suites (room nights) sold and the total revenue (in dollars) under the consideration of the contribution from breakfast, as well as the break-even occupancy, and comment on the impact of the breakfast contribution to the outcome of the break-even sales volume.
The calculations and comments need to be provided for all following scenarios4
5.Compute the room sales (for double and suites room) and revenue necessary to make an after-tax profit of $ 300,000.
6.Comment on the impact on the operating profit for a 10% increase and 10% economic contraction in demand under considerations of the degree of operating leverage.
a.Analyse and evaluate the impact of the degree of the operating leverage for the sales volatility exposure within the industry.
b.Reflect on possible strategies to manage a large seasonal sales volatility and provide a recommendation by incorporating financial and non-financial measures.
Task 3: Pricing Strategies Marks: 5
Evaluate the following statement considering the idiosyncrasies of the industry and comment on whether you agree with this statement. [Ensure to provide a rational and real-life example, while also relating your argument to Revenue Management.]
“When making pricing decisions, the management can justify setting prices that cover the variable costs only and no other costs.”
Consider whether other factors than the business own costs affecting the pricing.
Excellent
Very Good
Good
Satisfactory
Unsatisfactory
4 In each of the scenarios only the addressed variable changes while every other figure is identical to the base case. 9
100%
Excellent rationale which clearly identifies and interprets theoretical pricing frameworks in the application of a real case.
Very good rationale and application with links made to contingency approaches.
Rationale presented to a reasonable level or degree.
Limited or partial rationale for application presented.
No rationale considered nor presented.
10