Question

In the context of this course, you will be asked to address the issues/questions below for Marriott International, Inc. (MAR), www.marriott.com. When addressing the issues/questions, be sure to do so in the context of this course and Marriott. You have been appointed as the special assistant to the Chief Executive Officer (CEO), Arne Sorenson, who has asked you to address the following five situations:

(a) A fellow MBA alum from Lynn University, who now works in Admission at Lynn University would like to give each MBA student a benefit, which is programmed into the Lynn University ID card. This benefit would allow the student one night each month, depending on availability, for a room at the Marriott Courtyard for $40. Normally the room rate is $100 and the full cost of a night’s stay is $50. Discuss whether or not this would be feasible, i.e. Marriott is able to do this transaction without it being a donation.

(b) Marriott currently buys its ice machines from a manufacturer in China. A representative from a company in Vietnam is offering to sell them for 20% less than cost from the manufacturer in China. Discuss the issues that you would consider in deciding whether or not to accept this offer.

(c) The CEO wishes to develop an incentive plan for the hotel managers.

Before this is put into place, the CEO wishes you to make sure that budgeting

in the hotels is done correctly. He has asked you to submit a document discussing

the key points that you have learned in MBA 640. Be as thorough as possible.

(d) Marriott has only used absorption costing. The CEO has asked you

to explain the merits of using variable costing under certain circumstances.

(e) The CEO has asked you to explain how target costing/pricing would be used in

Marriott’s pricing policies.

Answer 1

The answer to the following requirements are as follows:

a. Yes, this would be feasible as Marriott International would still be earning a positive contribution margin of staying in Marriott Courtyard for $40 to the MBA students. Marriott would be earnng $10 per courtyard ($50 - $40). Although their sale price and profitability will be lower in cases of sales to MBA students, marriott will stand to gain in the long run as it will be in a position to influence the consumption of these students and gain their loyalty. Once they graduate many of the students will become regular customers and pay the full price of $100.

b. In deciding whether to accept this offer or not the issues that would have to be considered are   as follows:

• credit terms being offered by the supplier in Vietnam,
• terms and conditions of the delivery.
• lead time
• costs of transportation
• warranty period
• terms and conditions for repair and replacement .
• after sale service.

c. Before developing an incentive plan we will have to consider the company’s income statement, balance sheet and cash flows .The budget to determine the financial impact of the incentive plan. Each store should have a proper plan and budget ready and should be doing quantitative as well as qualitative data analysis. This will help us to be in a better position to do data gathering, proposal preparation and report preparation.

d. The merits of using variable costing is that this method provides a better understanding of the effect of fixed costs on the net profits. Secondly the net operating income figure produced by variable costing is the result of cash flow. This is helpful when there are cash flow problems. Lastly under variable costing income of different periods do not change with the change of inventory levels (as it does in case of absorption costing system).

e. Marriott can use target costing/pricing to decide in advance the price points, costs of the products, as well as profit margins that it wishes to achieve with regards to a new product. For example Marriott can introduce new low priced products for the MBA students using the target costing/pricing approach.