Final Paper on Managerial Accounting

On this small plot of land in the middle of a bustling city called Bacolod, in the Negros Occidental province of the Philippines, lies home to the family of Jose and Teodula Tamera. Located on 79 Lacson Street, this place was especially home to one of their sons, Robin Tamera.

After years of decadence in this little spot called home, Robin found himself working in Ontario, Canada. It was there that the inspiration to keep the property’s memories alive was sparked. He had a desire to keep this lot not only as a memorial keepsake for himself, siblings, and relatives, but first and foremost as a reminder of his parents’ love and care.

Robin Tamera’s concept was to open a very humble place for all to stay in Bacolod City, whether they were local or foreign visitors. He wanted a hotel that incorporated and adapted all of the finest amenities that other places in the world could offer.

In 2006, after years of investment and construction, Robin’s desire became a reality after converting their property to a bed and breakfast place. “The Tamera Plaza Inn” became not only a place to stay, but a memorial and tribute to the Tamera Family. The Inn offers overnight lodging and meals. It includes 1 Superior room, 8 De Luxe rooms , 6 standard double rooms, 5 standard single rooms, a function room, all air-conditioned with cable TV services. The Tamera Plaza Inn has 30 full time employees to date.

Meanwhile, the inn faces very serious seasonal customer fluctuations. The average number of tourists in Bacolod is 70,000 per year, majority of which are during Summer and in October during the MassKara festival. The inn has about 2 % of these tourist choose them for accomodations. Although the place has no rental costs and the expenses in the contsruction of the inn has already been acquired, the inn has an opportunity to increase its profitiability.

Below is the the cost allocation per year:

For the purpose of this paper, Activity-Based Costing will be used to analyze the inn’s profitability and to present a recommendation. In Table 1, Activities Analysis and Assignment of Activities to Products (lodging and dining) by activity drivers. Labor, material and utility costs traced to activities are shown in columns (1)-(3) of table 2. Columns (4)-(11) present detail about how activities are allotted to each product by drivers. For example, the driver of the cleaning activity is the true cleaning time which is total 3061.6 hours. Using the driver to trace the cleaning activity to the two products separately, and assigning 2651.4 hours and 410.2 hours respectively, of cleaning time, the driver can allocate PHP 46,611 to lodging and PHP 7,212 to dining.

Finally, adding all the allocation activities costs in each product we can get the total activity costs. The total product cost is the combination of the total activities costs, direct material costs, and outsource costs (laundry and transportation) in each product. Unit product cost is defined as the total product cost divided by the total number of customers. The unit product costs of lodging and dining are PHP 340.67 and 71.31 per customer respectively for a year. The lodging and dining products of The Tamera Plaza Inn represent two market segments.

After applying ABC to the The Tamera Plaza Inn case, the unit costs of each of the Inn’s products in two market segments are clear. The cost information acquired from ABC in this case will be useful to the owners for marketing strategy, decision making and cost-volume-profit analysis.

Table 1.

In the second stage, all activities costs in the five activities centers are assigned to the three country inn’s products. Table 2 shows activities analysis and the assignment of activities to products by activity drivers. Labor, material and utility costs traced to activities are shown in the second to fourth column of table1 while fifth to tenth columns present detail about how activities are allotted to each product by drivers. For example, the driver of the cleaning activity is the cleaning time which is total 6810.6 hours. Using the driver to trace the cleaning activity to the three products separately, and assigning 2651.4 hours, 3749 hours and 410.2 hours respectively, of cleaning time, the driver can allocate NT$ 46,611 to lodging, NT$65,904 to hot spring use, and NT$7,212 to dining.

Finally, adding all the allocation activities costs in each product we can get the total activity costs. The total product cost is the combination of the total activities costs, direct material costs, and outsource costs (laundry, hot spring water) in each product. Unit product cost is defined as the total product cost divided by the total number of customers. The unit product costs of lodging, hot spring use and dining are NT$ 306.21, NT$31.64 and NT$ 67.28 per customer respectively in the busy winter seasons. The lodging, hot spring use and dining products of this country inn represent three market segments. After applying ABC to the country inn case, the unit costs of each of the country inn’s products in three market segments are clear. The cost information acquired from ABC in this case is extremely useful to the inn’s owners (managers) for marketing, decision making and cost-volume-profit analysis.

Table 1
Monthly Costs of Resources

Resource
life time
Replacement value
Capital costs
Cost per month

Rent-a-land
30


700,000
Owner’s lands
30
150,000,000
13,324,092
1,110,341
Buildings
30
16,050,000
1,425,672
118,806

Personnel
Number
Total Costs
Cost per month

Full time staffs
23
9,060,000
755,000
Part-time staffs
13
2,448,000
204,000
Managers
2
1,320,000
110,000

is the general manager. Meanwhile, the inn faces very serious seasonal customer fluctuations. The average volume of customers for hot spring use can come to a maximum of 58,048 persons monthly in the winter season and a reaches minimum of 18,311 persons in the summer season. In addition, this hot spring country inn bears a heavy space and land costs due to the high cost of buildings and land in Taipei. The monthly costs of rent, lands, buildings and labor are showed in table 1.

This inn doesn’t use any activity-based costing method in its accounting system except for the traditional one. Since activity-based costing can be very complex and time consuming, and even less in tourism industry, it is not widely applied in the manufacturing industries in Taiwan (Chen, 2001, p. 52). It is recognized that partial activity-based costing can be used to enhance rather than totally replace the accounting system when the company finds it too difficult to implement full-scale ABC-based accounting.

Some companies also complain that the cost of ABC’s administrative and technical complexity, and of continuously generating activity data, exceeds any benefits subsequently derived from it, so that they reject proposals to implement ABC to their companies. Nevertheless, many firms still find they have success in cost reduction, product pricing, customer profitability analysis and output decisions when they adopt ABC (Chenhall and Langfield-Smith, 1998; Clarke et al., 1999; Innes and Sinclair, 2000; Cotton et al., 2003).

Our traditional accounting cost information was gathered from 1 November, 2003 to 30 December, 2003. The figures for customers’ volume were acquired from the mean of the number of customers in these two months. In order to obtain a more accurate picture of Table 2

Activities Analysis and Assigning Activity to Product Using Activity Drivers
Resource
Labor
Materiall
Total
Quantities of Drivers
Total
Unit cost per
Product cost
Activity

& Utility
Cost
Lodging
Spring
Dining
quantity
activity driver
Lodging
Hot-Spring
Dining
Cleaning
99,572
20,155
119,727
2,651.4
3,749
410.2
6810.6
17.58/hr
46,611
65,904
7,212

(10.57%)
(3.67%)
(0.32%)
Changing
1,455
607
2,062
960
0
0
960
2.15/hr
2,062
0
0
sheets

(0.47%)
(0%)
(0%)
Washing
32,225
22,196
54,421
830
1,832
188.6
2,851
19.09/hr
15,849
34,972
3,600

(3.59%)
(1.95%)
(0.16%)
Clear up
91,475
21,623
113,098
0
0
10,710
10,710
10.56/number
0
0
113,098

(0%)
(0%)
(5.06%)
Check on
5,454
2,276
7,730
450
0
0
450
17.17/number
7,730
0
0

(1.75%)
(0%)
(0%)
Ordering
54,451
1,994
56,445
0
0
11,203
11,203
5.04/number
0
0
56,445

(0%)
(0%)
(2.52%)
Carrying
75,220
2,754
77,974
0
0
103,754
103,754
0.75/number
0
0
77,974

(0%)
(0%)
(3.49%)
Re-supply
4,320
2,437
6,757
20
436
4
460
14.69/hr
294
6,404
59

(0.07%)
(0.35%)
(0.00%)
Cooking
297,968
58,945
356,913
0
0
2,010
2,010
177.57/hr
0
0
356,913

(0%)
(0%)
(15.96%)
Purchasing
73,886
605
74,491
18.5
24
198
240.5
309.73/hr
5,730
7,434
61,327

(1.30%)
(0.41%)
(2.74%)
Check in
263,806
90,647
354,453
232.47
1,891.67
692.5
2,816.64
125.84/hr
29,255
238,051
87,147
/out

(6.64%)
(13.26%)
(3.90%)
Admini-
36,608
1,049
37,657
210
779.2
102
1,091.2
34.51/space
7,247
26,890
3,520
strative

(1.64%)
(1.50%)
(0.16%)
Marketing
6,160
176
6,336
1,440
56,750
33,240
91,430
0.07/person
100
3,933
2,303

(0.02%)
(0.22%)
(0.10%)
Accounting
26,400
756
27,156
1,440
56,750
33,240
91,430
0.297/person
428
16,855
9,873

(0.10%)
(0.94%)
(0.44%)
Renting

700,000
251.96
1,385.80
461.94
2,099.7
333.38/space
83,999
461,999
154,002

(19.05%)
(25.73%)
(6.89%)
Depreciation

1,229,147
251.96
1,385.80
461.94
2,099.7
585.39/space
147,495
811,236
270,416

(33.45%)
(45.18%)
(12.09%)
Total
1,069,000
226,220
3,224,367*

Total activity cost
346,800
1,673,678
1,203,889

(78.65%)
(93.21%)
(53.83%)

* All activities in column (3) added
Direct material cost
61,137
116,843
1,032,498

(13.87%)
(6.51%)
(46.17%)

Outsource laundry
33,000

(7.48%)

Hot-spring water

5,049

(0.28%)

Total product cost
440,937
1,795,570
2,236,387

Total customers
1,440
56,750
33,240

Unit product cost
306.21
31.64
67.28

Allocated resource costs, working sampling (Tsai, 1996) is used to estimate the percentage of time spent on each of various activities for each staff member and manager. In this way an adjusted percentage of personnel time spent on each activity can be obtained. In the first stage, resources in this country inn are assigned to all activities in five activities centers by resource drivers.

In the second stage, all activities costs in the five activities centers are assigned to the three country inn’s products. Table 2 shows activities analysis and the assignment of activities to products by activity drivers. Labor, material and utility costs traced to activities are shown in columns (1)-(3) of table 2. Columns (4)-(11) present detail about how activities are allotted to each product by drivers. For example, the driver of the cleaning activity is the true cleaning time which is total 6810.6 hours. Using the driver to trace the cleaning activity to the three products separately, and assigning 2651.4 hours, 3749 hours and 410.2 hours respectively, of cleaning time, the driver can allocate NT$ 46,611 to lodging, NT$65,904 to hot spring use, and NT$7,212 to dining.

Finally, adding all the allocation activities costs in each product we can get the total activity costs. The total product cost is the combination of the total activities costs, direct material costs, and outsource costs (laundry, hot spring water) in each product. Unit product cost is defined as the total product cost divided by the total number of customers. The unit product costs of lodging, hot spring use and dining are NT$ 306.21, NT$31.64 and NT$ 67.28 per customer respectively in the busy winter seasons.

The lodging, hot spring use and dining products of this country inn represent three market segments. After applying ABC to the country inn case, the unit costs of each of the country inn’s products in three market segments are clear. The cost information acquired from ABC in this case is extremely useful to the inn’s owners (managers) for marketing, decision making and cost-volume-profit analysis.

TAMERA PLAZA INN
Date Established: March 2006
#79 Lacson St., Bacolod City
Tel No. 432-1708; Fax: 709-0886
Manager: Dina Serfino
E-mail: [email protected]
Classification: Economy Class
No. of Rooms: 20

Rates:
Superior
1
1,500.00
Deluxe
8
1,300.00
Standard Double

1,100.00
Standard Single

900.00
Extra Matress

250.00
Extra Person

100.00
Last Updated: September 11, 2013
Rates are subject to change without prior notice