Question

• Assume you are working on budgeting for the room department of your hotel.
• Assume the hotel’s ‘Room Revenue (Sales)’ was $1,640,000 during 2016. Based on the lodging forecast report, you expect the ‘Room Revenue (Sales)’ to increase by 3.7% next year.
• Assume the ‘Guest Supplies’ expenses (variable costs) from the room department was $250,000 during 2016. For 2017, this variable cost will remain at the same percentage of the Room Revenue (Sales) as experienced in 2016.
• Assume the ‘Salaries’ expenses (fixed costs) from the room department was $280,000 during 2016. For 2017, this fixed cost will increase by 2% due to the expected increase in living expenses in this area.

1. What will be the budgeted ‘Room Revenue (Sales)’ for 2017?

2. What will be the budgeted ‘Guest Supplies’ expenses for 2017?

3. What will be the budgeted ‘Salaries’ expenses for 2017?

Answer 1

1. Computation of budgeted ‘Room Revenue (Sales)’ for 2017:

Budgeted Room Revenue for 2017 = Budgeted Room Revenue for 2016 + Increase in Revenue in 2017

Therefore, Budgeted Room Revenue for 2017 = $1,640,000 + 3.7% of $1,640,000 = $1,700,680.

2. Computation of budgeted ‘Guest Supplies’ expenses for 2017:

As the variable cost of Guest Supplies will remain same as percentage of the Room Revenue (Sales) as experienced in 2016 we will first calculate the Variable Cost as a percentage of sale in 2016 which will be as follows:

Variable Cost as a percentage of sale in 2016 = Variable Cost in 2016/Revenue in 2016 * 100

Therefore,Variable Cost as a percentage of sale in 2016 = $250,000/$1,640,000* 100 = 15.24%

Therefore, budgeted ‘Guest Supplies’ expenses for 2017 = $1,700,680 * 15.24% = $259,250

3. Computation of budgeted ‘Salaries’ expenses for 2017:

Budgeted ‘Salaries’ expenses for 2017 = Salary in 2016 + Budgeted Increase in salary expenses

Therefore,Budgeted ‘Salaries’ expenses for 2017 = $280,000 + 2% of $280,000 = $285,600