Question

1) What you have been learning about The cost classification, Labor cost, ABC Costing. How do you think this knowledge could help you to be an effective hospitality manager in the future? (in 200 words minimum).

2)  Method of apportioning costs to the cost centers of:

- Employee’s holiday pay

- Rooms division manager’s salary

- Electrical power costs

- Cost of servicing the hotel’s service lifts or elevators

- Fee paid to a professional consultant for advice on fire regulation procedures.

In 2 or 3 sentences explain why you are choosing the respective method of apportioning such costs to the cost centers.

3) You have learned the application of ABC (Activity-Based Costing) in a hotel set-up. In 300 words minimum, discuss how you can apply ABC costing in a restaurant business. Be specific about the functional departments in the business. Give examples.

Answer 1

1. Activity-based costing ABC is a costing method that assigns overehead and indirect costs to related products and services. This accounting of ABC Costing recognizes the relationship between costs, overhead activities, and manufactured products.

ABC Costing is generally used in the manufacturing industry since it enhances the reliability of cost data and hence producing approx true cost and better classifying the costs incurred by the company during its production process.

Benefits of ABC Costing -

a. It expands the number of cost pools that can be used to assemble overhead costs. Instead of accumulating all costs in one company- wide pool, it pools costs by activity.

b. It creates new bases for assigning overhead costs to items such that costs are allocated based on the activities that generate costs instead of on volume measures, such as machine hour or direct labor costs.

c. ABC alters the nature of several indirecr costs, making costs previously considered indirect.

ABC has an appropriate costing system in hospitality manufacturing industry. The implementation of ABC in hospitality industry proven to provide an accurate and reliable cost information which can be used for strategic decision making. Moreover, the accuracy of ABC in producing cost information allows firms to conduct CPA (Critical Path Analysis) more accurate and precise. The information obtained from the result of the analysis, which is the profitability of cuatomers, can also be used for strategic decision making.

In conclusion, the implementation of ABC in hospitality industry proved to hepls managers to be better informed to make a sound, reasonable and realistic decision about pricing which would help organization complete in a more competitive market. Thus, to answer the central research question, the implementation of ABC does improve the pricing decision in hospitality industry.