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Hotel Costing | Service Costing | Problems & Solutions

Arjun EP

Published on: February 2, 2022

Hotel Costing | Accounting for Hotel Costing

Hotel is a hospitality organization of tourism activities for eating and lodging.

The main purpose of hotel is to provide lodging.

It also provides food and beverage to the guests who are economically, mentally and physically able to receive.

Customers are called guests in hotel industries.

Foods are depending on nature of market price.

Fooding and lodging are two separate services.

So, separate calculations are necessary for these two services.

Other method for calculation of total operating cost is fixed cost and variable cost.

The number of room available is calculated on different basis like hotel size, location, level of service, facilities target market etc.

Room rent may be different during season and off-season.

Statement of Operating Cost

XYZ Hotel

Particulars	Amount $
Fixed costs:
Staff salary	xxxx
Repairs and renewable	xxxx
Interior decoration	xxxx
Laundry contract cost	xxxx
Insurance	xxxx
Other office/administrative expenses	xxxx
Sundry fixed cost	xxxx
Depreciation on fixed assets	xxxx
Other fixed expenses etc	xxxx
Total A	xxxxx
Variable costs:
Lighting charge	xxxx
Power, heating and coal	xxxx
Attendant’s salary	xxxx
Linen purchase (clothes)	xxxx
Purchase of food materials	xxxx
Other variable expenses etc	xxxx
Total B	xxxxx
Total operating cost	xxxxx
Room rent per day per guest = Total operating cost ÷ Total room days

Profit on cost = Total cost x % ÷ 100

Profit on revenue = Total cost x % ÷ (100 – %)

Statement of Operating Cost

XYZ Hotel

(For per week or day, per person)

Particulars	Amount weekly	Amount per day
Food cost per person, per day:
Break fast		xxx
Lunch		xxx
Dinner		xxx
Total A		xxx
Food cost to staff, per day or week:
Restaurant service	xxx
Housekeeping service	xxx
Front office expenses	xxx
General service	xxx
Total B	xxx
Direct expenses, per day or week:
House keeping	xxx
Restaurant	xxx
Front office	xxx
Total C	xxx
Indirect expenses, per day or week:
Indirect expenses for restaurant	xxx
Indirect expenses for house keeping	xxx
Indirect expenses for front office	xxx
Indirect expenses for general service	xxx
Total D	xxx	xxx
Total cost per day or week, per person (A+B+C+D)		xxxx

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2A

Following information is given by Nirvana Hotel, a leading two star hotel:

Permanent staff salaries	$12,00,000 per annum.
Room attendance salary	$100 per day
Lighting, heating and power	$1,50,000 per annum average
Repairs to building	$1,50,000 per annum
Linen	$2,38,480 per annum average
Sundries fixed expenses	$90,000 per annum
Interior decoration	$250,000 per annum
Depreciation on building	$1,00,000 per annum
Depreciation on equipment	$1,50,000 per annum

Additional information:

The salary is paid room attendant on daily basis. There is one room attendant for one room.

Assume that period of the season and off-season is 6 months each.

There are 80 rooms in the hotel and 75% of the rooms are normally occupied in season and 30% occupied in off-season.

Normal days in a month may be assumed to be 30.

Profit margin is targeted at 50% of the total cost.

Required: (1) Statement of operating cost showing fixed cost and variable cost; (2) Total room days;

(3) Cost of room rent per day per guest; (4) Average charge to guest if profit 90% on service revenue

[Answer: (1) $19,40,000 + 19,00,480 = 38,40,480;

(2) 15,120 room days; (3) $254; (4) $2,286]

SOLUTION:

Given and working note:

Attendants’ salary:
Season = $100 x 80 rooms@75% x 30 days x 6 months	= 10,80,000
Off season = $100 x 80 rooms@30% x 30 days x 6 months	= 4,32,000
Total salary	= $15,12,000

Statement of Operating Cost

Nirvana Hotel

(For one year)

Particulars	Amount
Fixed cost:
Staff salary	12,00,000
Repairs to building	1,50,000
Sundries fixed expenses	90,000
Interior decoration	2,50,000
Depreciation on building	1,00,000
Depreciation on equipment	1,50,000
Total A	19,40,000
Variable cost:
Room attendant’s salary	15,12,000
Lighting, heating and power	1,50,000
Linen	2,38,480
Total B	19,00,480
Total operating cost (TOC)	38,40,480
Cost of room rent per day per guest [Total operating cost ÷ Total room days viz $38,40,480 ÷ 15,120]	254
Charge to guest [254 x 90 ÷ (100 – 90)	2,286

Total room days

Season = 80 rooms @ 75% x 30 days x 6 months	10,800
Off season = 80 rooms @ 30% x 30 days x 6 months	4,320
Total room days	15,120

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2B

City View Hotel has 30 bedrooms with a maximum sleeper nights of 210 per week average 70% occupancy remains throughout the year. The average food cost per person per day comes to as follows:

Breakfast $54

Lunch $150

Dinner $200

Weekly food cost to staff and wages for following services comes to as under:

Restaurant service $14,200

Housekeeping service $9,500

General service $7,300

Annual direct expenses for:

Housekeeping $182,000

Restaurant $109,200

Additional information:

(a) One year is equal to 52 weeks.

(b) Indirect expenses of $260,000 to be apportioned to restaurant, housekeeping and general service in the ratio of 3:4:3

Required: (1) Total cost per day per guest; (2) Charge to guest if 90% profit on cost

[Answer: (1) $682.99; (2) $1,297.68]

SOLUTION:

Operating Cost Sheet

City View Hotel, Pokhara

Per day, per guest

Particulars	Restaurant	Housekeeping	General service
Weekly food cost to staff and wages	14,200	9,500	7,300
Direct expenses:
Housekeeping ($182,000 ÷ 52)	–	3500	–
Restaurant ($109,200 ÷ 52)	2,100	–	–
Indirect expenses ($260,000 ÷ 52 in 3 : 4 : 3)	1,500	2,000	1,500
Total before adjustment	17,800	15,000	8,800
General service apportioned in 5:3	5,500	3,300	(8,800)
Total after adjustment	23,300	18,300	Nil
Cost per person per day (Total ÷ 210 beds @70%)	158.50	124.49	Nil

Again,

Total cost per guest per day		Charge to guest
Restaurant	158.50	Cost per guest per day	682.99
Housekeeping	120.49	Add: Profit [682.99 @ 90% of cost]	614.69
Breakfast	54.00		$1,297.68
Lunch	150.00
Dinner	200.00
Total	$682.99

Note:

210 sleeper night = 30 beds x 7 days a week.

So, no entry for 30 beds

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Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

TU: 2061 Modified

Hillside Hotel has 15 bedrooms with a maximum sleeper nights of 164 per week. Being a well viewed Hotel, an average 75% occupancy remains throughout the year. The average food cost per person per day comes to as follows:

Breakfast $18.20

Lunch $33.00

Dinner $40.80

Weekly food cost to staff and wages for following services comes to as under:

Restaurant service $1,420

Housekeeping service $950

General service $730

Annual direct expenses for:

Housekeeping $18,200

Restaurant $10,920

Indirect expenses of $26,000 to be apportioned to restaurant, housekeeping and general service in the ratio of 3:4:3.

General service cost is to be apportioned to restaurant and housekeeping in the ratio of 5:3.

Required: (a) Cost per person per day of restaurant and housekeeping; (b) Total cost per day per person

[Answer: Restaurant = $18.94; Housekeeping = $14.88;

Total cost per person per day = $125.82;

*General expenses $880 x 5:3 = 550 and 330;

SOLUTION

Operating Cost Sheet

Hillside Hotel

(Per day, per person)

Particulars	Total	Restaurant	House keeping	General service
Weekly food cost to staff and wages	3,100	1,420	950	730
Direct expenses:
Housekeeping (18,200 ÷52)	350	–	350	–
Restaurant (10,920÷ 52)	210	210	–	–
Indirect expenses (26,000 ÷ 52 in 3:4:3)	500	150	200	150
Total before adjustment	4,160	1,780	1,500	880
Expenses of general service transfer in 5:3	Nil	550	330	(880)
Total after adjustment	4,160	2,330	1,830	Nil
Cost per person per day (total ÷ 164 beds @75%)		18.94	14.88	Nil

Therefore, total cost per person per day:

Restaurant	18.94
Housekeeping	14.88
Breakfast	18.20
Lunch	33.00
Dinner	40.80
Total	$125.82

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

TU: 2064 Modified

AM Lodging Home is being run in a small hill station with 60 single rooms 90% of rooms are generally occupied in summer and 50% in winter. The period of summer and winter may be considered to be 30 weeks and 22 weeks respectively. The profit margin is targeted at 50% of the room rent.

The cost estimation and other details for the year ending are:

	Amount		Amount
Staff salaries	800,000	Repair and maintenance	70,000
Lighting and heating	200,000	Insurance	30,000
Interior decoration and others	80,000	Other variable expenses	71,800

The fixed assets of lodging home are as under:

Building $20,00,000

Furniture $10,00,000

Equipment $5,00,000

Annual depreciation: Building 5%; Furniture and equipment 10%

Required: (1) Total room days; (2) Operating cost statement showing fixed, variable and total cost.

(3) Profit and total cost; (4) Room charge per day per guest

[Answers: (1) Total room days = 15,960;

(2) Fixed = $12,30,000; Variable = 2,71,800; Total = $15,01,800;

Profit = $15,01,800; Total cost = $30,03,600;

(3) Room charge = $188.20 per day per guest;

SOLUTION:

Given and working note:

Depreciation:

On building 100,000

On furniture 100,000

On equipment +50,000

Total 250,000

Total room days

in summer	= 60 rooms @ 90% x 30 weeks x 7 days	11,340
In winter	= 60 rooms @ 50% x 22 weeks x 7 days	+ 4,620
		15,960

Operating Cost Sheet

AM Lodging Home

(For 12 months)

Particulars	Amount $
Standing/fixed charges:
Staff salaries	8,00,000
Interior decoration and other	80,000
Repairs and maintenance	70,000
Insurance	30,000
Depreciation	2,50,000
Total A	12,30,000
Running/variable charges:
Lighting and heating	2,00,000
Other variable expenses	71,800
Total B	2,71,800
Total charges (A+B)	15,01,800
Add: Profit (1501,800 x 50 ÷ (100– 50)	15,01,800
Total cost	$30,03,600
Total room days	15,960
Room charge per day per guest = Total room charge ÷ Total room days	$188.20

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Problems and Answers of Hotel Costing

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2A

Wildlife Safari Resorts has following data:

Food provision per guest per day (related to food and beverage):

Breakfast $90

Lunch $250

Dinner $300

Indirect expenses $9, 00,000 apportioned on the basis of floor area occupied.

Annual expenses are:

Departments	Wages and salaries	Sundry expenses
Food and beverage	4,00,000	8,00,000
Front office	3,00,000	4,00,000
House keeping	2,50,000	1,22,000

Floor area occupied by three departments:

Food and beverage (F&B) 3,000 square feet

Front office (FO) 4,000 square feet

Housekeeping (HK) 2,000 square feet

Additional information:

(a) Administrative cost is apportioned on the basis of total departments cost.

(b) There are 40 rooms in the resorts and 80% of the rooms are normally occupied for 8 months and 20% for 4 months.

(d) Profit margin: 25% on billing amount.

Required: (1) Cost statement showing food and beverage and housekeeping; (2) Total cost per guest per day;

(3) Charge to guest if 50% profit on cost

[Answer: food and beverage = $211.81; Housekeeping = $155.32;

Total cost = $1,007.12; Profit = $503.56; Charge = $1,510.68]

*Number of room days (7,680 + 960) = 8,640

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country

PROBLEM: 2B

Hotel Nuwakot (P) Ltd has following information for 31^st December:

Annual expenses summary:

Staff salaries:	Front office @ $30,000 per month
	Housekeeping @ $35,000 per month
	Food and beverage @ $20,000 per month each
	Kitchen department @ $15,000 per month each

Lighting and heating		$100,000 per annum
Interior decoration and garden keeping		$150,000
Repairs and maintenance		$90,000
Depreciation on building		5% of $12,00,000
Depreciation on furniture and equipment		10% of $9,00,000
Miscellaneous expenses		$2,00,000
Insurance		$40,000