Question

Management accounting measures, analyzes, and reports financial and nonfinancial information to internal managers. The goal is to use past performance to predict the future. The internal reports should plainly inform managers of the financial results of actual operations. The reports should also show how activities can be changed to affect and improve what will happen in the future. Business operations are complex sets of activities, and to maximize profit considerable information, analysis, and decision making is required in advance of actual action. Decisions are needed when there are real alternatives that managers can choose from to deal with operating problems. Without high-quality information, business could not be conducted. David Diamond is the owner of the Galaxy chain of four-star prestige hotels. These hotels are in Chicago, London, Los Angeles, Montreal, New York, Seattle, Tokyo, and Vancouver. Diamond is currently struggling to set weekend rates for the Vancouver hotel (the Vancouver Galaxy). From Sunday through Thursday, the Galaxy has an average occupancy rate of 90%. On Friday and Saturday nights, however, average occupancy declines to less than 30%. Galaxy’s major customers are business travellers who stay mainly Sunday through Thursday. The current room rate at the Galaxy is $180 a night for single occupancy and $216 a night for double occupancy. These rates apply seven nights a week. For many years, Diamond has resisted having rates for Friday and Saturday nights that are different from those for the remainder of the week. Diamond has long believed that price reductions convey a “nonprestige” impression to his guests. The Vancouver Galaxy highly values its reputation for treating its guests as “royalty.” Most room costs at the Galaxy are fixed on a short-stay (per-night) basis. Diamond estimates the variable costs of servicing each room to be $24 a night per single occupancy and $26.40 a night per double occupancy. Many prestige hotels in Vancouver offer special weekend rate reductions (Friday and/or Saturday) of up to 50% of their Sunday-through-Thursday rates. These weekend rates also include additional items such as a breakfast for two, a bottle of champagne, and discounted theatre tickets. Forecasting outcomes is the heart of a decision. There will almost always be a gap between what was expected and what is actually realized because the future cannot be predicted with accuracy. A good decision process includes a post-implementation assessment and explanation of the key causes of differences between expected and actual outcomes. This is how managers learn from their experiences.

Required: Write a report from the standpoint of Dimond and include all the following concerns:

a. Would you recommend that Diamond reduce room rates at the Vancouver Galaxy on Friday and Saturday nights? What factors to protect the value proposition should be considered in his decision?

b. In six months’ time, the Grey Cup is to be held in Vancouver. Diamond observes that several four-star prestige hotels have already advertised a Friday-throughSunday rate for Grey Cup weekend of $360 a night. Should Diamond charge extra for the Grey Cup weekend? Explain.

PLEASE SHOW THE REQUIRED CALCULATIONS WHICH ARE USED IN MANAGERIAL ACCOUNTING.

Answer 1

a. The 3 factors that Diamond ought to think about in valuation choices are:Customers. the most important customers (“guests” to Diamond) of the Galaxy square measure business travellers WHO preponderantly remain a Sunday-through-Thursday basis.Diamond ought to think about these issues:

(1) can variety of} the $180/$216-a-night customers staying Sunday through Th transfer their business to Fri or Sat for reduced rates?If a large number of those customers will transfer their business to Fri or Sat nights, Diamond ought to be reluctant to create sizable weekend value discounts.

(2) can a brand new set of shoppers be interested in the Galaxy with a reduced weekend rate, folks that wouldn't be attracted at the $180/$216-a-night rates?(3) however can seasonality have an effect on the business?can there be additional tourists, and so less want for a reduction, at sure times of the year?

The business customers of Galaxy probably can perceive cost-volume-profit relationships for hotels and not be displeased at completely different rates for various days of the week.“Off-peak” valuation is Associate in Nursing accepted convention in several industries (such as in telecommunications and airlines).Competitors. several status hotels already supply sizable value discounts on weekends.Moreover, cuts of up to five hundredth square measure the nominal value discounts.the extra things enclosed in weekend packages (such as breakfast or a bottle of champagne) augment the effective value discount.Costs. The variable prices of coupling every area square measure solely $24 an evening per single occupancy and $26.40 an evening per double occupancy.Any charge per unit on top of these amounts can create a positive contribution to Galaxy’s operational financial gain.It is Associate in Nursing accepted convention that weekend rates at Vancouver’s status hotels are going to be down on Fri and Sat nights.Diamond might want to supply moderate value reductions and add different discounted things within the weekend package.The approach might facilitate maintain the policy of treating guests as “royalty.”A Finnish student commented that hotels in Suomi give customers WHO have a high volume of business in peak amounts with complimentary rooms within the off-season period.b. the shoppers, competitors, and value factors that apply to setting the rates for gray Cup weekend include:Customers. The probably customers are often classified as:Charging the market rate (even if it's $360 a night) isn't probably to alienate different customers.He might want to supply most well-liked reservations or “normal” weekday ($180/$216-a-night) rates to his regular customers on gray Cup weekend.Competitors. many four-star status hotels square measure already advertising $360 an evening rates.Thus, Galaxy won't be viewed because the initial to adopt Associate in Nursing “aggressive price-gouging” approach.Hotels typically increase their rates thanks to exaggerated demand even once prices don't increase.

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