HOTEL COSTING

HOTEL COSTING

Hotel industry is a service industry and covers various activities such as provision for food and accommodation. It also provides other comforts like recreations, business facilities, shopping areas etc. The expenses incurred in a hotel are fixed or variable. Fixed expenses comprises of staff salaries, repairs, interior decoration, laundry contract cost, sundries and depreciation on fixed assets. The variable expenses incurred are lighting, attendants’ salaries, power etc. To find out room rent to be charged from customers a notional profit is added with the cost and divided by the number of rooms available. The number of rooms available is calculated after for considering availability of suits and occupancy. Rooms rent may be different from season to season. Sometime besides accommodation they also provide food. Then the cost of meals, other direct and indirect costs are considered to work out the costs to be charged from customers.

Illustration

A company runs a holiday home for this purpose it hired a building at a rent of Rs. 10,000 per month along with 5% of total takings. It has three types of suites for its customer’s viz. single room, double room and triple rooms. Following information is given:

Types of suite Number     Occupancy percentage

Single rooms 100                    100 %

Double rooms 50                      80 %

Triple rooms 30                         60 %

The rent of double room’s suite is to be fixed at 2.5 times of the single room and that of triple rooms at twice of the double room suite.

The other expenses for the year 2009 are as follows in Rs.

Staff salaries 14,25,000

Room attendants wages 4,50,000

Lighting heating and powers 2,15,000

Repairs and renovations 1,23,500

Laundry charges 80,500

Interior decoration 74,000

Sundries 1,53,000

Provide profit @ 20 % on total takings and assume 360 days in a year. You are required to calculate the rent to be charged for each type of suite.

Calculation of equalant single room suits occupancy

36,000 x 1 + 14400 x 2.5 + 6480 x 5 = 104400

Rent for a double room = 33.73 x 2.5 = Rs. 84.325

Rent for a triple room = 84.325 x 2 = Rs. 168.65

Illustration

A lodging home is being run in a small hill station with 50 single rooms. The home offers concessional rate during six off season months in a year. During this period, half of the full room rent is charged. The management profit margin is targeted at 20% of the room rent. The following are the cost estimates and other details for the year ending 31st March, 1996 (assume a month to be of 30 days)

(a) Occupancy during the season is 80%, while in the off season is 40% only.

(b) Expenses :

(i) Staff Salary (excluding room attendants) Rs. 2,75,000

(ii) Repairs to buildings Rs. 1,30,000

(iii) Laundry and linen Rs. 40,000

(iv) Interior and tapestry Rs. 87,500

(v) Sundry expenses Rs. 95,400

(c) Annual depreciation is to be provided for building at 5% and on furniture and  equipments at 15% on straight line basis.

(d) Room attendants are paid Rs. 5/- per room-day on the basis of occupancy of the rooms in a month.

(e) Monthly lighting charges are Rs. 120 per room, expect in four months of winter when it is Rs. 30 per room and this cost is on the basis of full occupancy for a month and

(f) Total investments in the home are Rs. 100 lakhs of which Rs. 80 lakhs relate to buildings and balance for furniture and equipments.

You are required to work out the room rent chargeable per day both during the season and the off-season months, on the basis of the foregoing information.

Solution:

Total estimated costs for the year ending 31.03.1996

During season room rent is Rs. 197 and during off-season room rent is Rs. 98.50

* Attendant’ salary

For 10,800 room days @ Rs. 5 per day = Rs. 54,000

** Total light bill

Light bill during 8 months at Rs. 120 per month or 120 ÷ 30 = Rs. 4 Per room day.

Light bill during 4 months of winter at Rs. 30 per month or 30 ÷ 30 = Re. 1 per Room day.

Total light bill for full one year Rs.

‐ During season @ Rs. 4 for 7,200 days 28,800

‐ During 2 months of off-season @ Rs. 4 for 1,200 days (2 ÷ 6 x 3,600) 4,800

‐ During 4 months of winter at Re. 1 For 2,400 days (4 ÷ 6 x 3,600) 2,400

Total 36,000

Seasons occupancy for 6 months@80% (50 x 0.8 x 6 x 30) = 7,200 room days Off season’s occupancy for 6 months @ 40 % (50 x 0.4 x 6 x 30) = 3,600 room days

Total room days during the Year 10,800

Total full room days in terms of rate Season 7,200

Off Season (in terms of 50 % rate on 3,600 days) 1,800

Total Full room days 9,000 per annum

Illustration

Elegant Hotel has a capacity of 100 single rooms and 20 double rooms. It has a sports centre with a swimming pool which is also used by persons other than residents of the hotel. The hotel has a shopping arcade at the basement and a specialty restaurant at the roof top. The following information is available:

(1) Average occupancy : 75 % for 365 days of the year

(2) Current costs are :

                               Variable cost      Fixed cost

Single room                  400                 200

Double room                 500                250

(3) Average sales per day of restaurant Rs. 1, 00,000;contribution is at 30 %. Fixed cost Rs. 10, 00,000 per annum.

(4) The sports centre / swimming pool is likely to be used by 50 non –residents daily; average contribution per day per nonresident is estimated at Rs. 50; fixed cost is Rs. 5,00,000 per annum.

(5) Average contribution per month from the shopping arcade is Rs. 50,000; fixed cost is Rs. 6, 00,000 per annum.

You are required to find out:

(a) Rent chargeable for single and double room per day, so that there is a margin of safety of 20 % on hire of rooms and that the rent for a double room should be kept at 120 % of a

single room.

(b) Evaluate the profitability of restaurant, sports centre and shopping arcade separately.

Rent per day of single room 9in Rs.) 756 (approx)

(Refer to working note 2)

(Rs. 2, 56,64,062 / 33,945)

Rent per day of double room (in Rs.) 907 (approx)

(Rs. 756 x 1.2 times)

Working Note :

1. Single room occupancy days in a year = 100 room x 365 days x 75 % = 27,375

Double room occupancy days in a year = 20 rooms x 365 days x 75 % = 5,475

2. In terms of single room total room occupancy days in a year

= 27,375 + 1.20 % x 5,475 = 27,375 + 6,570

= 33,945