ACTIVITY BASED COSTING

QUESTION 2
Item Basis of Hotel Restaurant Conference Total
Apportionment
K K K K
Beverages Allocated 400,000 450,000 500,000 1,350,000
Other Allocated 350,000 100,000 90,000 540,000
Total prime cost 750,000 550,000 590,000 1890,000
Overheads:
Marketing (revenues) 189,511.94 18,951.194 41.436.86 250,000
Utilities (no. of guests) 281,853.140 140,926.64 77,220.07 500,000
Cleaning (Floor area) 473,448.59 31,578.94 94,736.84 600,000
Accounting & Finance (revenues) 136,448.57 13,644.85 29,906.54 180,000
Dept.
Human Resource Dept. (no. of employees) 71,428.57 50,000 28,574.42 150,000
Front Office Dept. (no. of guests) 422,779.92 211,389.96 115,850.11 750,000
Other (no. of guests) 56,370.65 28,185.32 15,444.01 100,000
Total Costs 1,632,076.88 494,676.9 403,248.85 4,420,000

(b) Workings:
Utilities
Overhead Cost 500,000
= =¿K 15. 44 per guest
No . of Guests 32375
= 18250 x 15.44
= K 281,780
HR Dept.
Overhead Cost 150,000
= =¿ K 7142.85 per Employee
No . of employees 21
= 10 x 7142.85
= K 71,428.50
Front Office
Overhead Cost 750,000
= =¿ K 23.166 per guest
No . of Guests 32375
= 18,250 x 23.166
= K 422,779.50
Other Costs
Overhead Cost 10 0,000
= =¿ K4761.90 per employee
No . of employees 21
= 10 x 4761.90
= K 47,619.00
 HOTEL ROOM
Item Cost (K)

Beverages Allocated 400,000

Other Allocated 350,000
Total Allocated Costs 750,000
Overheads
Utilities 281,780
HR Department 71,428.50
Front Office 422,779.50
Other Costs 47,619.00
Marketing 189,511.94
Cleaning 473,684.21
Accounting & Finance 136,448.59
Total Costs 2,373,251.74

(c) Operating Income (ABC)

Hotel Room (unit) only
K
Revenues (sales) 9,125,000
Less: Prime costs (Direct)
Beverages (400,000)
Other costs (350,000)
8,375,000
Less Overheads
Utilities (281,780)
HR Department (71,428)
Front Office Department (422,779.50)
Other costs (47,619.00)
Marketing (189,511.94)
Cleaning (473,684.59)
Accounting & Finance (136,448.59)
Operating Profit 6,751,748.28

Profit Statement
Hotel Room
Original plan Proposed plan
60%
K K
Sales (Revenue) 9,125,000 5,475,000
Less: Direct costs (@ 60%) 750,000 450,000
8,375,000 5,025,000
Less: Overheads 1,623,251.74 973,951.04
Profit (Income) 6,751,748.26 4,051,048.96
Less: Adjusted Expenditure - 190,000
Adjusted Profit 6751,748.26 386,048.96
Comment: There will be a decline in the profits by 57.18%
(ii) Cost Per Room per night
Original Plan Proposed Plan
K 2,373,251.74 K 1,613,951.04
Total cost= ¿
nights / year 365
¿ K 4,421.78
K 2,373,251.74
¿
365
¿ K 6,502.05