Biz201 Accounting For Decision Making Assessment Answer

• The business will have ownership over the equipment and does not need to care about any rental expenses for the equipment.
• The management has full control over the assets and therefore can use it to any proportion

The disadvantages of selecting buying option are listed below:

• The overall expenses which the business needs to incur is quite high in comparison to renting option and therefore adds to the additional burden of the business.
• The business also has to incur servicing costs for the equipment otherwise, the equipment might not last up to the useful life of the equipment also.

Renting Option

The business can also rent the equipment from outside which can be on a monthly payment basis of rent. This option as shown in the table above is more cost effective and the total cost which the business has to incur under this option is shown to be $ 35,459. The rent payments are shown on a yearly basis and the same also includes the servicing charges for the equipment.

The advantages which is associated with this option are given below:

• The rental charges which are shown in above figure are much lower than the costs which is incurred if the management buys the equipment.
• The management does not need to separate servicing charges as in the case of buying option which makes it convenient for the management.

The disadvantages which are associated with the selection of renting option are listed below:

• The management does not have ownership over the equipment and therefore has no control over them.

Thus, from the analysis of both the options, it can be clearly judged that the management should select the renting option in order to incur less costs and earn more revenue of the business. The renting option is shown to be more favorable in comparison to buying option (Bianchini et al. 2016).

Task 2

Figure 2: (Image showing analysis of Membership project)

Source: (Created by Author)

The above table shows the membership project plan which is developed by the management of Hotel. The cash outflows of the business mainly consist of expenses of the business relating to basic services and also remuneration of trainer and dietician. The cash inflow considers both the type of membership customers.

The management should accept the membership project as the NPV which is calculated ion the above table shows a positive figure which is shown to be $ 6,276. This indicates that the cash inflows for the project is more than the cash outflows of the project. Therefore, the project is worth making investments in as the same will increase the revenue of the business and prove to be profitable for the hotel business.

Task 3

Figure 3: (Image showing Promotional Budget)

Source: (Created by Author)

Task 4

Figure 4: (Image showing computation of Breakeven point of the Business)

Source: (Created by Author)

The concept of Cost-Volume-Profit (CVP) analysis is a tool which is used by management in order to analyze the changes in profits which is related to changes in volume, costs and prices for the products (Walther & Skousen, 2014). The analysis helps management to take decisions regarding the prices which are to be set in order to earn a significant amount of profits for the business (Baral, 2016). The technique of CVP analysis is used for the purpose pf comparison of costs and profits which the business is capable of earning during a year (Machuga & Smith, 2013).

The assumptions which are considered for the purpose of computing Cost margin and breakeven point are listed below:

• The significant costs of the business can be recognized as manufacturing, administrative costs which can be either fixed or variable in nature.
• The prices at which the products of the products of the business are to be sold are always considered to constant in nature and changes in activities of the business is the only factor which can affect the overall costs of the business (Armean & Ardeleanu, 2017).
• Another major assumption which is considered in case of computation of breakeven point for a business is that all the units which is produced by the business are sold of f during the year.

In the case of Crystal Hotels, the significance of CVP analysis is high as the business needs to estimate a range of sales which the business needs to achieve in order to get to the breakeven point which is generally no profit no loss situation (Marjanovic, Riznic & Ljutic, 2013). CVP analysis is very useful in estimating the sales revenue which the business is capable of generating during the period. In addition to this, the process is quite crucial in the planning stage for the business in estimating the range of services which the management needs to provide in order to achieve breakeven point for the business.

Functions and Event Department Assessment

Task 1

The management of Crystal Hotel wants to make the hotel more attractive and therefore has introduced a refurbishment project. The purpose of the project is to set out more plants in the lobby area which are fresh so that it can beautify the hotel and thereby attract more customers to the business. The management has two options in this case which is to either hire an external specialist company for handling the refurbishment project of the business or purchase plants themselves and hire a gardener to perform the job of looking after plants in the lobby area. The analysis chart for buy option and rent option is provided below.

Figure 5: (Image showing comparison between Buying Option and Renting Option)

Source: (Created by Author)

Buying option

The above image shows comparative analysis for buying and renting option. As per the buying option plan, the management has to incur one-time expenses for a 3 years period to purchase the plants which are to be planted in the lobby area of the business. In addition to this, the management also have to hire a gardener for looking after the plants of the business. The overall cost which is related to selecting such an option is higher than the renting option which is available to the management of the hotel.

The advantage which is related to selection of buying option is that the control will be at the hands of the management and the management can change plants as well as style of arrangements as per the preference of the management of the Hotel. The disadvantage which is related to incorporation of buying option is that the overall cost of the business will increase due to the payments which are to be made to the gardener for maintenance. The cost which is shown in the image in figure 5 is $ 38,480.

Renting Option

As per this option, the business can hire specialist who will be handling the plantation in the lobby and will also help the business in maintenance of the same. The specialist business will be taking charges for the services provided. In this case the plantation will be done more efficient as specialist are involved.

The major advantages of using renting option is that the business is able to reduce the costs which is incurred by the management in the project and thereby provides a chance to the business to earn better revenues. Another advantage is that the quality of the service provided will be effective as specialist are involved. The disadvantages which are associated with the selection of renting option is that the management will not have effective control.

Therefore, from the discussion and analysis of the tow options which are present before the management of Crystal Hotel, renting option needs to be selected by the management as the same will reduce the overall costs of the business and thereby also increase profits slightly (Zhou et al. 2015). The aim of the hotel business should be to minimize the costs of the business and therefore, renting option is most favorable for the business.

Task 2

As per the case which is provided in the question, the management of Crystal Hotel wants to invest in an event management software package for managing the events of the business. The expectation of the management is that the new software will bring about efficiency and also reduce time for booking and purchasing of tickets. The management has two payments methods and analysis is to be done which is more favorable from the point of view of the business. The chart below shows the comparison for both the methods.

Figure 6: (Image showing comparison between License and Subscription options)

Source: (Created by Author)

License Option

In this option the initial outflow is shown to be $ 6,900 which is the principle payment for the software and the costs which are incurred during year 2 and year 3 are upgradation costs which is to be incurred to keep the system running. The basic advantage which is associated with selecting this option is that the business needs to incur one-time payment for the licensing and the additional costs of upgradation is to be incurred. The ownership is in the hands of the management until the license is revoked. The disadvantage which is associated with the licensing of project is that management needs to incur more in comparison to subscription option.

Subscription Option

Under this option, the costs which is incurred by the business are in same proportion through every year. The total cash outflow is shown to be $ 6,713 which is shown in figure 6. The advantage which is associated with selection of this option is that the business incurs less costs and thereby saves cost in comparison to licensing option and the disadvantage which is associated with the option is that full control over the software is not in the hands of the management.

Thus, from the analysis of the two options which are available to the management of Crystal Hotel, subscription plan should be selected as the same will lead to cost savings in the business. This option will benefit the business and help in more profit generation for the hotel.

Task 3

Task 4

Figure 4: (Image showing computation of Breakeven point of the Business)

Source: (Created by Author)

As per the above table, the CVP analysis is conducted to evaluate the cost margin and breakeven point for the attending a corporate meeting of the company. The services which provided needs to be analyze with the help of breakeven analysis to estimate the level of sales which the business needs to achieve in order to cover the fixed costs of the business without making any profits. The breakeven point is shown to be 1000 units of services.

The significance of CVP analysis is immense as the same helps the management of the company to take effective decisions regarding the level of sales or unit of services which the business needs to provide to achieve no profit no loss situation (Georgiev, 2014).

Reference

Armean, D., & Ardeleanu, M. L. (2017). Performance Management By Cvp Analysis. Business Excellence and Management, 7(2), 72-93.

Baral, G. (2016). Cost–Value–Profit Analysis and Target Costing with Fuzzy Logic Theory. Mediterranean Journal of Social Sciences, 7(2), 21.

Bianchini, A., Gambuti, M., Pellegrini, M., & Saccani, C. (2016). Performance analysis and economic assessment of different photovoltaic technologies based on experimental measurements. Renewable Energy, 85, 1-11.

Chair Covers Melbourne | Melbourne Chair Covers | Balwyn Events. (2018). Balwyn Events. Retrieved 18 August 2018, from https://www.balwynevents.com.au/

Event Planning Company Sydney | Corporate Event Organisers Australia. (2018). Funktionality. Retrieved 18 August 2018, from https://funktionality.com.au/

Georgiev, D. (2014). Application of ‘Cost-Volume-Profit’Analysis in the Hotel Industry Based on Survey Data of High-Ranking Hotels in the North-East Region of Bulgaria.

Hamper, R., Hamper, F., Hamper, S., Nuts, M., Hamper, '., & Hamper, G. (2018). Hampers Australia - Only The Best Selection At The Hamper Emporium. The Hamper Emporium. Retrieved 18 August 2018, from https://www.thehamperemporium.com.au/

Machuga, S., & Smith, C. (2013). A Case Method Approach of Teaching How Cost-Volume-Profit Analysis is Connected to the Flexible Budgeting Process and Variance Analysis. Journal of Accounting and Finance, 13(6), 178-192.

Marjanovic, P., Riznic, D. T., & Ljutic, B. Z. (2013). Validity of Information Based On (CPV) Analysis For The Needs Of Short-Term Business Decision Making. Annals of the Oradea University. Fascicle of Management and Technological Engineering, 2, 131-139.

Walther, L. M., & Skousen, C. J. (2014). Cost Analysis. Bookboon.

Zhou, C., Gong, Z., Hu, J., Cao, A., & Liang, H. (2015). A cost-benefit analysis of landfill mining and material recycling in China. Waste management, 35, 191-198.