LE GRAND HOTEL DE LEYSIN (GHL)

Theory Recap
 Class 2 – GHL
Basic Concepts

1. Cost Object : Anything that has to be “costed” (measured)

2. Cost Driver : “trigger” that generate the increase/decrease of an specific cost

3. Fixed Cost : Cost that remains unchanged over a period , on a certain range of Activity Level

4. Variable Cost : Cost that change proportionally with I/D of Activity Level

5. Direct Cost : Cost that can be traced directly in a economical manner to a specific Cost Object

6. Indirect Cost: cost that is “shared” by several Cost Objects, and has to be allocated

7. Standard Cost: Cost that was calculated based on knowhow of company’s processes – FUTURE cost
 Class 2 – GHL

Traced

direct
Resources

COST
Distributed OBJECT

indirect
DRIVER (DISTRIBUTION RATE)
 Class 2 – GHL

Traced

direct
Resources

Distributed
COST
OBJECT
indirect Distributed

indirect

indirect DRIVERS ( DIF DISTRIBUTION RATES)

 Class 2 – GHL
BEP & CVP Analysis

BEP – 1 Product

BEP – Multiproduct

Contributing Margin %
 Class 2 – GHL
CVP Analysis
NET INCOME (NI) = NET REVENUE (NR) – TOTAL COSTS

NET REVENUE (NR) = Selling Price x unit (px) x Units Sold (qx)

TOTAL COSTS (TC) = Total Variable Cost (VC) + Total Fixed Costs (FC)

Total Variable Costs (VC) = Variable Cost x unit (vx) x Units Sold (qx)

NI = NR – ( VC + FC)

NI = (px x qx) – (vx x qx) – FC

NI = (px – vx) x qx - FC

NI = cm x qx - FC
NI = Sum (cmi x qxi ) - FC
 Class 2 – GHL
BEP & CVP Analysis

What if we reduce variable cost of one product

 Class 2 – GHL
Capacity / Term Matrix

TERM
SHORT LONG

cm > 0 dB LT > 0
LOW

( dB ST > 0)
CAPACITY
HIGH

cm x usr > 0 dB LT x usr > 0

( dB ST x usr > 0)

Where: cm is contributing margin (x unit)

usr is “unit x scarce resource”
dBST is “differential Benefit Short Term” and dBLT is “differential Benefit Long Term