Question

1. Why do managers of a motel or food service operations need financial statement? Give examples

2. In a departmental organization what is the difference between direct expenses and indirect expenses? Give examples

Answer 1

Question 1

Managers of a motel or food service operations need financial statements for a variety of purposes
1. To enable comparisons with restaurants/ motels operating in the same segment
2. Enables the management to take rational decisions regarding the future operations
3. Understand where the revenue (the split between different departments) is coming from, trends in the revenue
4. Get an overview of the expenses and their sources
5. Develop a clear understandinganding of the financial position of the firm- its asset and liabilities

Question 2

Direct expenses are those expenses which are connected with the purchase of goods without which it would not be possible to bring the goods to the purchase point. Direct expenses vary directly with the change in volume of the cost object
Example- Carriage inward, freight and insurance
Indirect expenses are those that are incurred to operate a business as a whole or a segment and cannot be directly attributed to a cost object.
Example- accounting, audit and legal fees