THH3113 Application of Break-Even Point Analysis Assignment Sample

Cost and Performance Management for Tourism and Hospitality

Table of Contents

Introduction.

Forecasted Total Cost and Revenue for Danny’s Proposal and normal occupancy

Break-even units in rooms and dollars.

Comparison in between Danny’s Proposal with normal occupancy.

Recommendation.

Reason of Recommendation.

Conclusion.

Reference List

Introduction to Application of Break-Even Point Analysis

• The presentation helps in understanding difference in variable and fixed cost
• This is done from perspective of Purple Resorts
• Decision regarding whether 100 rooms will be booked fixed
• Or variable bookings will be allowed as per occupancy rate has to be made

Speaker Notes: This help in understanding ways in which decisions are made so that an organization can profit from selling fixed or variable amount of units

Forecasted Total Cost and Revenue for Danny’s Proposal and Normal Occupancy

• Total cost estimated is by calculating the full-time salary, casual staff wages
• Electricity and water charges along with guest laundry and room cleaning charges is considered
• Weekly Bank, Phone and Internet charges has been considered
• At 92% occupancy rate it has been estimated to have costs of $ 93681.68
• At 80% occupancy rate which is fixed, cost incurred is $ 92,403.20

Speaker Notes: Danny’s proposal suggests that a lower profit margin will be gained

Contd…

• Revenue earned has been estimated to be $ 89693.1, however it will vary as expected occupancy is 92%
• At occupancy rate of 80%, the revenue earned is $ 65994, however this will be fixed and rest 25 rooms can be filled
• Rest 25 rooms will be filled as the occupancy rate is 92% which will result in full bookings of available rooms
• Rest 25 rooms at $129.99 per night accounts to (129.99*25*6 days) = $19498.5
• This accounts to a total of $ 85,492.5

Speaker Notes: Revenue earned from it accounts to $ 65994 and a total of $ 85,492.5 will be gained if the rest 25 rooms are given bookings

Break-Even Units in Rooms and Dollars

• Break even points are achieved when cost incurred is equal to the revenue earned (Manganelli, 2016)
• This can be estimated and comes to a result based on number of units that need to be sold (Ryan et al. 2017)
• Second can be the amount of sales that has to be made to recover the expenses

Speaker Notes: Break even points helps in having an idea of the amount of units that have to be sold for gaining revenue which equals the cost incurred

Contd…

• Beak even point will be earned by selling rooms of 92% occupancy for 20 nights
• Break even point will be achieved in case of 80% occupancy by selling rooms for 46 times
• Hence, more advantage is to ho with variable cost of 92% occupancy

Speaker Notes: The break event point has been for 40 units for variable and 20 for fixed bookings

Comparison in Between Danny’s Proposal with Normal Occupancy

• Danny’s proposal will yield a revenue of $ 65994 only of the 100 rooms get filled
• On other hand having a variable revenue generation pattern will yield a $ 89693.1
• However, with fixed booking allotment there is more assurance

Speaker Notes: The rest 25 rooms can be opened for booking resulting in revenue of total $ 85.492.5

Contd…

• Hence, it can be said that Danny’s proposal can be considered
• This will lead to increase in brand image and good will
• They can also charge high rates for guests during this period

Speaker Notes: As the revenue earned will be low, however staying of cricket players will attract other guests

Recommendation

• It is recommended to charge a price so that the deficit following a fixed booking can be recovered
• This will attract other tourists and will also afford a higher price (Yuniarta, 2017)

Speaker Notes: It is recommended to advertise that cricket players are staying for 6 nights

Reason of Recommendation

• It will help in making the gap in between revenue earned and cost incurred
• It will help in brand promotion
• Loyal customer base will increase

Speaker Notes: The reason for recommendations is that it will help in earning as much as the cost incurred along with reaching break-even point quickly

Conclusion on Application of Break-Even Point Analysis

• Danny’s Proposal must be adapted with certain change in the price
• Value based pricing strategy is recommended
• This will in making profit and reach break-even point rapidly

Reference List for Application of Break-Even Point Analysis

Choiriyah, V. U., AR, M. D., & Hidayat, R. R. (2016). Analisis Break Even Point sebagai Alat Perencanaan Penjualan pada Tingkat Laba yang Diharapkan (Studi Kasus pada Perhutani Plywood Industri Kediri Tahun 2013-2014). Jurnal Administrasi Bisnis, 35(1), 196-206.

Kampf, R., Majer?ák, P., & Švagr, P. (2016). Application of break-even point analysis. NAŠE MORE: znanstveno-stru?ni ?asopis za more i pomorstvo, 63(3 Special Issue), 126-128.

Kampf, R., Majer?ák, P., & Švagr, P. (2016). Application of break-even point analysis. NAŠE MORE: znanstveno-stru?ni ?asopis za more i pomorstvo, 63(3 Special Issue), 126-128.

Lee, R. T. (2016). Fixed and Variable Costs: When Accounting Is the Opposite of Cash Flow Reality. Journal of Corporate Accounting & Finance, 27(4), 31-35.

Liao, S., Zhu, Q., Qian, Y., & Lin, G. (2018). Multi-granularity feature selection on cost-sensitive data with measurement errors and variable costs. Knowledge-Based Systems, 158, 25-42.

Liu, Y., & Tyagi, R. K. (2017). Outsourcing to convert fixed costs into variable costs: A competitive analysis. International Journal of Research in Marketing, 34(1), 252-264.

Manganelli, B. (2016). The break-even point of the utilities in the real estate market of bilateral monopoly. International Journal of Applied Engineering Research, 11(8), 5395-5399.

R?CHIT?, U., DIACONESCU, T., & MÂZG?, A. (2016). FLEXIBLE BUDGET MANAGEMENT AND “CASH-FLOW” PLAN IN NATIONAL AND INTERNATIONAL HOTEL UNITS. OF ECONOPHYSICS & NEW ECONOMY, 199.

Ryan, P., Skally, M., Duffy, F., Farrelly, M., Gaughan, L., Flood, P., ... & Fitzpatrick, F. (2017). Evaluation of fixed and variable hospital costs due to Clostridium difficile infection: institutional incentives and directions for future research. Journal of Hospital Infection, 95(4), 415-420.

Yuniarta, G. A. (2017). THE RELATIONS OF TOTAL TOURISTS VISIT ON OPERATIONAL COST AT STARS HOTEL IN BULELENG DISTRICT. International Journal of Social Science and Business, 1(4), 229-233.

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