1. As from 1 January 2021, it has been decided to decrease the price of meals by 5%, which is anticipated to result in a 10% increase in the volume of turnover for the year ending 31 December 2021. 2. Sixty percent (60%) of the kitchen and dining hall overheads are fixed, 55% of which are committed fixed costs. 3. Administrative expenses consist of the salaries of the administrative staff working in the catering service of the hotel, as well as costs of head office accounting staff and management, amounting to R90 000, that are allocated to the various hotels based on catering turnover. Due to the fact that the accounting staff at head office are responsible for the accounting records of more than one hotel, the latter cost will not cease to exist should the hotel catering service be terminated. The administrative staff working in the catering service of the hotel would have to be retrenched should the catering service be terminated. Selling expenses are fixed and include weekly advertisements in local newspapers and menus, which are all discretionary costs. An amount of R12 000 per annum, being part of the salary of the public relations officer of the hotel which is allocated to the catering service, is also included. Required: Advise the management of the hotel group on whether, purely from a profit point of view, the hotel staff should continue with the catering service or if the offer of Mrs Fusion should be accepted in the long term as well as in the short to medium term. State a reason for every cost item not taken into account.
1. As from 1 January 2021, it has been decided to decrease the price of meals by 5%, which is anticipated to result in a 10% increase in the volume of turnover for the year ending 31 December 2021. 2. Sixty percent (60%) of the kitchen and dining hall overheads are fixed, 55% of which are committed fixed costs. 3. Administrative expenses consist of the salaries of the administrative staff working in the catering service of the hotel, as well as costs of head office accounting staff and management, amounting to R90 000, that are allocated to the various hotels based on catering turnover. Due to the fact that the accounting staff at head office are responsible for the accounting records of more than one hotel, the latter cost will not cease to exist should the hotel catering service be terminated. The administrative staff working in the catering service of the hotel would have to be retrenched should the catering service be terminated. Selling expenses are fixed and include weekly advertisements in local newspapers and menus, which are all discretionary costs. An amount of R12 000 per annum, being part of the salary of the public relations officer of the hotel which is allocated to the catering service, is also included. Required: Advise the management of the hotel group on whether, purely from a profit point of view, the hotel staff should continue with the catering service or if the offer of Mrs Fusion should be accepted in the long term as well as in the short to medium term. State a reason for every cost item not taken into account.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:1.
As from 1 January 2021, it has been decided to decrease the price of meals by
5%, which is anticipated to result in a 10% increase in the volume of turnover for the year
ending 31 December 2021.
2.
Sixty percent (60%) of the kitchen and dining hall overheads are fixed, 55% of which are
committed fixed costs.
3.
Administrative expenses consist of the salaries of the administrative staff working in the
catering service of the hotel, as well as costs of head office accounting staff and
management, amounting to R90 000, that are allocated to the various hotels based on
catering turnover. Due to the fact that the accounting staff at head office are responsible for
the accounting records of more than one hotel, the latter cost will not cease to exist should
the hotel catering service be terminated. The administrative staff working in the catering
service of the hotel would have to be retrenched should the catering service be terminated.
Selling expenses are fixed and include weekly advertisements in local newspapers and
4.
menus, which are all discretionary costs. An amount of R12 000 per annum, being part of
the salary of the public relations officer of the hotel which is allocated to the catering
service, is also included.
Required:
Advise the management of the hotel group on whether, purely from a profit point of view, the hotel
staff should continue with the catering service or if the offer of Mrs Fusion should be accepted in the
long term as well as in the short to medium term. State a reason for every cost item not taken into
account.
![QUESTION TWO
[25]
Hilty Hotel is one of many hotels owned by a large hotel group. Guests are booked into the hotel
for accommodation only. All guests wanting to enjoy meals, arrange payment of the meals directly at
the dining hall.
In the past few months, head office has found that the catering service, which is currently being run
by hotel staff, appears to be incurring substantial losses, especially during out of season periods.
The catering service has traditionally been a profitable part of the hotel.
In an attempt at finding a solution, management of the hotel group are looking at the
possibility of contracting out the catering service of the hotel to a private person.
Mrs Fusion, a private caterer, has approached the management of the hotel offering to pay R5 000
rental per month to rent the kitchen and dining hall from the hotel. The offer, if accepted by the hotel,
will result in Mrs Fusion taking over the whole catering service, including the purchasing, the
preparation, the advertising and the selling of the food.
You have been supplied with the following information with regard to the catering service run by the
hotel staff for the year ended 31 December 20201
R
R
Food sales
900 000
Less Cost of sales
(800 000)
Direct groceries and supplies
440 000
Direct labour
264 000
Kitchen and dining hall overheads
96 000
Gross Profit
100 000
Less Expenses
(174 000)
Administration expenses
156 000
Selling expenses
18 000
Net Loss
(74 000)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feacce431-0bd8-438b-bc9b-5432d036b9a3%2Ff2acae26-a114-40e9-8546-5c7a4062d603%2F8m1wyo_processed.jpeg&w=3840&q=75)
Transcribed Image Text:QUESTION TWO
[25]
Hilty Hotel is one of many hotels owned by a large hotel group. Guests are booked into the hotel
for accommodation only. All guests wanting to enjoy meals, arrange payment of the meals directly at
the dining hall.
In the past few months, head office has found that the catering service, which is currently being run
by hotel staff, appears to be incurring substantial losses, especially during out of season periods.
The catering service has traditionally been a profitable part of the hotel.
In an attempt at finding a solution, management of the hotel group are looking at the
possibility of contracting out the catering service of the hotel to a private person.
Mrs Fusion, a private caterer, has approached the management of the hotel offering to pay R5 000
rental per month to rent the kitchen and dining hall from the hotel. The offer, if accepted by the hotel,
will result in Mrs Fusion taking over the whole catering service, including the purchasing, the
preparation, the advertising and the selling of the food.
You have been supplied with the following information with regard to the catering service run by the
hotel staff for the year ended 31 December 20201
R
R
Food sales
900 000
Less Cost of sales
(800 000)
Direct groceries and supplies
440 000
Direct labour
264 000
Kitchen and dining hall overheads
96 000
Gross Profit
100 000
Less Expenses
(174 000)
Administration expenses
156 000
Selling expenses
18 000
Net Loss
(74 000)
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