Assignment 1

Course Name & Code:

Cost Control – 332
Assignment Title:
Cost Accounting in Hospitality Industry
Student Name:
Basil Adel Alhasani
Student ID:
2137209
Submitted to:
Dr.Reda Gadelrab
Date of Submission:
08/10/2023
 Cost accounting identification in hospitality operations.

Cost accounting plays crucial role in the efficient management and decision-
making processes within hospitality operations. It involves the identification
Measurement, and analysis of cost incurred in running a hospitality business.
By focusing on cost identification, cost accounting enables managers to
understand and control expenses, enhance profitability, and make informed
decisions. The following points highlight the significance of cost accounting
identification in hospitality operations:
1- Cost control: cost accounting helps identify and track various costs
associated with hospitality operations, such as ingredients, labor, utilities,
and overheads. By closely monitoring these costs, managers can identify
areas of excessive spending or waste, enabling them to implement
appropriate cost control measures. For example, if the cost accounting
system reveals that food costs are higher than expected, managers can
investigate the reasons behind it and take corrective actions, such as
renegotiating supplier contracts or modifying the menu.
2- Menu Engineering: Cost accounting assists in menu engineering, which
involves analyzing the profitability and popularity of menu items. By
accurately identifying the costs associated with each dish, including raw
martials, labor, and overheads, managers can determine the profitability
of menu items and make informed decisions about pricing, portion sizes,
and product mix. Cost accounting helps identify high-margin items, low-
margin items, and those with high popularity but low profitability,
allowing managers to optimize the menu for maximum profitability.
3- Budgeting and Forecasting: Cost accounting provides valuable data for
creating budgets and forecasts in hospitality operations. By identifying
and analyzing historical costs, managers can estimate future expenses and
revenues more accurately. This information helps in setting realistic
financial goals, allocating resources effectively, and making strategic
decisions. For instance, cost accounting can reveal seasonal fluctuations
 in costs, allowing mangers to plan for increases staffing or adjust
purchasing strategies accordingly.
4- Pricing Decisions: Cost accounting plays a pivotal role in determining
optimal pricing strategies for hospitality services. by accurately
identifying cost, managers can calculate the breakeven point and
determine the desired profit margin. This information helps in setting
competitive prices that cover costs and generate a profit. Cost accounting
also enables managers to evaluate the impact of pricing changes on
profitability and make data-driven decisions regarding discounts,
promotion, and pricing adjustments.
5- Profitability Analysis: Cost Accounting facilitates detailed profitability
analysis by identifying costs at various levels, such as departments,
product, or services. This analysis helps managers assess the profitability
of different aspects of the business, identify areas of improvement, and
allocate resources effectively. By understanding the cost structure and
profitability drivers, managers can focus on enhancing revenue streams,
reducing costs, and maximizing overall profitability.

1. Hayes, D. K., & Miller, A. G. (2011). Revenue Management for the

Hospitality Industry. John Wiley & Sons.
2. Gibson, M. (2015). Financial Management and Accounting in the
Hospitality Industry. Routledge.
3. Jagels, M. G. (2017). Menu Engineering: A Practical Guide to Menu
Analysis and Engineering for Foodservice Operations. Pearson.
4. Collier, P. M., & Agyei-Ampomah, S. (2016). The Need for Cost
Accounting Systems in the Hotel Sector. International Journal of
Contemporary Hospitality Management, 28(2), 388-409.
5. Kotas, R., & Kotas, J. (2011). Cost and Management Accounting in the
Hospitality Industry. Journal of Tourism Challenges and Trends, 4(2),
89-102.
6. Cokins, G. (2018). Performance Management and Analytics for
Hospitality Organizations: Strategies and Techniques. Routledge.
 Purposes of cost accounting in hospitality

cost accounting is a vital management tool for hospitality businesses of all

sizes. It provides managers with the information they need to understand
their costs, make informad decisions, and improve profitability.
The following are some of the key purposes of cost accounting in hospitality
operations:

 Cost control: cost accounting helps managers to identify, track, and

manage costs, this information can be used to develop and implement
cost- saving measures, such as negotiating better prices with suppliers,
reducing waste, and improving energy efficiency.
 Decision making: Cost accounting provides managers with the
information they need to make sound decisions about pricing,
marketing, and other aspects of their business. For example, managers
can cost accounting information to determine which product and
services are most profitable, to set prices that cover costs and generate
a profit, and to develop targeted marketing campaigns.
 Forecasting: Cost accounting can be used to forecast future costs. This
information can then be used to budget and plan for the future. For
example, managers can use cost accountings information to forecast
food and beverage costs for the nest month or year, based on historical
data and expected sales trends .
 Performance Measurement: Cost accounting can be used to measure
the performance of different departments and cost centers within a
hospitality business. This information can then be used to identify
areas where improvement is needed. For example, managers can ues
cost accounting information to compare the food and beverage costs
of different restaurants within a hotel chain.
Importance of cost management in decision making and control

cost management is essential for hospitality operations because it helps

managers to make informed decisions and control costs.
Cost accounting provides managers with the information they need to set
prices, develop marketing campaigns, create budgets, track expenses, and
identify and implement cost-saving measures.
Here are some specific examples of how hospitality managers can use cost
accounting information to make better decisions and control costs:

 Pricing: hotel managers can use cost accounting information to

determine the cost per night of running a particular type of room. This
information can then be used to set prices that are competitive and
profitable.
 Marketing: Restaurant managers can ues cost accounting information
to identify which dihes are most profitable. This information can then
be used to develop marketing campaigns to promote those dishes.
 Budgets: Restaurant managers can use cost accounting information to
forecast future costs, such as the cost of food supplies and employee
salaries. This information can then be used to create a realistic.

Examples of how cost management can be used to make better decisions and
control costs in hospitality Operations:
 A hotel Manager can use cost management information to determine
which type of room is the most profitable. The manager can then focus
their marketing efforts on promoting that type of room and increase the
price of that type of room slightly.
 A Restaurant manager can use cost management information to
determine which dishes are the most profitable. The manager can then
place those dishes on the menu in a more prominent location and promote
them to customers.
 The Hospitality manager’s role in cost control

The hospitality manager plays a critical role in cost control. The manager is
responsible for setting budgets, tracking costs, and identifying and
implementing cost-saving measures.
Some of the specific things that hospitality managers can do to control costs
include:

 Set clear budgets for each department and cost center.

 Track costs regularly and compare them to budget.
 Identify areas where costs are high and investigate the reasons why.
 Implement cost-saving measures, such as negotiating better prices with
suppliers, reducing waste, and improving energy efficiency.
 Promote cost awareness among staff and provide regular training on cost
control procedures.
In addition to these specific tasks, hospitality managers also play an important
role in creating a culture of cost consciousness within their organizations. This
can be done by setting clear expectations for staff, providing regular feedback
on cost performance, and rewarding employees for their efforts to save costs.

Here are some specific examples of how hospitality managers can create a
culture of cost consciousness:

 Set clear expectations for staff: At the beginning of each year,hospitality

managers should review the budget with their staff and explain the
importance of cost control. Managers should also set clear goals for each
department and cost center.
 Provide regular feedback on cost performance: Hospitality managers
should meet with their staff regularly to review cost performance and
identify any areas where costs are over budget.Managers should also
provide feedback on specific actions that staff can take to reduce costs.
 Reward employees for their efforts to save costs: Hospitality managers
should recognize and reward employees who make significant
contributions to cost control. This can be done through formal recognition
programs, financial rewards, or simply by saying thank you.
 List References

 American Hotel & Lodging Association. (2023). Accounting for Hotels and Other
Lodging Establishments.

 Cornell University. (2023). Hotel Cost Control and Revenue Management.

 Deloitte. (2023). Cost Accounting in the Hospitality Industry.

 PwC. (2023). Hospitality Industry Trends and Outlook.

 Hayes, D. K., & Miller, A. G. (2011). Revenue Management for the Hospitality
Industry. John Wiley & Sons.
 Gibson, M. (2015). Financial Management and Accounting in the Hospitality
Industry. Routledge.
 Jagels, M. G. (2017). Menu Engineering: A Practical Guide to Menu Analysis and
Engineering for Foodservice Operations. Pearson.
 Collier, P. M., & Agyei-Ampomah, S. (2016). The Need for Cost Accounting
Systems in the Hotel Sector. International Journal of Contemporary Hospitality
Management, 28(2), 388-409.
 Kotas, R., & Kotas, J. (2011). Cost and Management Accounting in the Hospitality
Industry. Journal of Tourism Challenges and Trends, 4(2), 89-102.
 Cokins, G. (2018). Performance Management and Analytics for Hospitality
Organizations: Strategies and Techniques. Routledge