CIA (Continuous Internal Assessment) – 1

Interpret the relevant theories of cost and management accounting and

prepare cost sheet and quotations

Submitted by: -

Mella Mohit Viswanadhan (2220243), Keerthi Chamarthi (2220225), Paarth

Maheshwari (2220257), Amrutha Krishnan (2220221) and Ruth Lewis

(2220245)

School of Business and Management, Christ University Bangalore

BBA 431: Cost and Management Accounting

Submitted To:- Dr Shiney Sam (MCom, Mphil, PhD, PG Diploma)

January 15th, 2024

 TABLE OF CONTENTS
Sno. Title Pg no.
1. Introduction
1.1 Overview of the Assignment Objective
1.2 Methodology and Approach
2. On-Site Visit and Data Collection
2.1 Business Units and Service Sectors Selection
2.2 Interview Preparation and Objectives
2.4 Key Insights from Interviews
2.4.1 Management Perspectives
2.4.2 Employee Insights
2.5 Data Collected on Cost Structures
3. Cost Sheet Preparation
3.1 Direct Costs Analysis
3.1.1 Material Costs
3.1.2 Labour Costs
3.2 Indirect Costs Analysis
3.2.1 Overheads
3.2.2 Other Relevant Expenses
3.3 Detailed Cost Sheet with Calculations
3.4 Cost per Unit Calculation
4. Quotation Analysis
4.1 Formulating a Competitive Quotation
4.2 Justification of Profit Margins
4.3 Comparative Market Analysis
5. Reflection
5.1 Personal Insights and Learnings
5.3 Implications for Future Business Practices
6. Conclusion
7. Appendices
Appendix A: Geotagged Photos of Visits
8. References
1. Introduction

1.1 - Overview of the Assignment Objective:-

This assignment, strategically designed for the Cost and Management Accounting course,

aims to bridge the gap between theoretical learning and practical application in the realm of

cost analysis and pricing strategies. It presents a unique opportunity for students to immerse

themselves in the dynamic environment of various business units and service sectors, offering

a platform to apply academic concepts to real-world scenarios.

The primary objective of this exercise is to equip students with hands-on experience in the

meticulous process of cost sheet preparation and the strategic analysis of quotations. By

forming small groups, students are encouraged to foster collaborative learning and teamwork,

essential skills in any business setting. Each group will undertake a journey of discovery,

visiting selected business entities or service sectors to gather firsthand insights into their

operational cost structures and pricing mechanisms.

The assignment is structured to facilitate a deep understanding of how businesses calculate

and manage direct and indirect costs, including material and labor costs, overheads, and other

relevant expenses. This understanding is pivotal in preparing a comprehensive cost sheet,

which serves as the cornerstone for any pricing strategy in a business.

Moreover, students are tasked with the critical challenge of formulating a competitive

quotation. This exercise is designed to enhance students' analytical and decision-making

skills, enabling them to consider various factors such as market conditions, cost parameters,

and profit margins in their pricing strategies.

In conclusion, this assignment is not just an academic exercise; it is a journey into the heart of

business operations. It is designed to develop critical thinking, analytical skills, and a hands-

on understanding of cost structures and pricing strategies, thereby preparing students for

successful careers in business management.

1.2 Methodology and Approach:-

This assignment adopts a multifaceted methodology rooted in the principles of Cost

Management Accounting (CMA), emphasizing empirical research, analytical rigor, and

strategic synthesis. The approach is designed to engender a comprehensive understanding of

cost behavior, allocation methodologies, and pricing strategies within diverse business

environments.

1. Empirical Field Research:

 Sampling Technique: Utilizing a stratified random sampling approach, we ensure a

representative cross-section of business units and service sectors is selected for study.

This method provides a holistic overview of varying cost structures across different

market segments.

 Data Triangulation: To ensure the reliability and validity of data, multiple sources of

information are employed, including interviews, observational visits, and document

analysis. This triangulation strategy enriches the depth and breadth of collected data.

2. Cost Analysis and Allocation:

 Activity-Based Costing (ABC): ABC methodology will be pivotal in tracing

overhead costs to specific activities, thus providing more accurate product costing and

insight into potential cost-saving opportunities.

  Variance Analysis: This technique will be employed to assess the performance of

cost centers by comparing actual costs against budgeted costs, thereby identifying and

analyzing deviations.

 Marginal Costing: Marginal costing principles will be used to understand the impact

of variable costs on the production process, aiding in decision-making processes

related to pricing and scaling of operations.

3. Pricing Strategy Formulation:

 Cost-Volume-Profit (CVP) Analysis: This analysis will provide insights into how

changes in costs and volume affect a company's operating income, critical for pricing

decisions and break-even analysis.

 Target Costing: A market-driven approach will be used where selling prices are

determined based on market conditions, followed by aiming to achieve these prices

through strategic cost management.

 Transfer Pricing: In cases involving multi-divisional business units, transfer pricing

mechanisms will be examined to understand inter-divisional transactions and cost

allocations.

4. Analytical and Critical Reflection:

 SWOT Analysis: A SWOT analysis will be conducted post-visit to evaluate the

strengths, weaknesses, opportunities, and threats of the observed cost structures and

pricing strategies.

 Reflective Synthesis: A critical reflection on the findings, encompassing both

theoretical understanding and practical insights, will culminate the research process.

In conclusion, this methodology and approach are meticulously designed to foster a deep

understanding of contemporary cost management and pricing strategies. It will enable

students to navigate complex business scenarios with analytical acumen and strategic

foresight.

2. On-site Visit and Data Collection

2.1 - Business Units Selection:-

As part of our comprehensive analysis in cost sheet preparation and quotation analysis, our

selection of business units was meticulously strategized to include a diverse range of hotels,

each offering unique insights into various cost structures and pricing strategies. Our primary

selections include La Classic Hotel, Palm Suites, and several other local hotels, each chosen

for their distinct operational models and market positioning.

1. La Classic Hotel: A Benchmark of Luxury and Operational Excellence La Classic Hotel,

centrally located on Hosur Main Road, stands out as a paragon of luxury hospitality.

Renowned for its unrivaled hospitality, this hotel provides a rich context for analyzing

sophisticated cost management and pricing strategies in the luxury segment. The hotel's

strategic location and esteemed reputation make it an ideal model for examining high-end

service delivery, cost allocation for luxury amenities, and premium pricing tactics. The

insights gained from La Classic Hotel are pivotal in understanding the dynamics of luxury

hotel management and the intricacies of maintaining profitability while offering exceptional

service.

Name:- La Classic

Address:- Plot No. 158, Yadavanahalli,

Hosur Rd, Attibele, Karnataka 562107

2. Palm Suites: A Blend of Comfort and Modernity Palm Suites, recognized for its modern

amenities and comfortable lodging, offers a contrast to La Classic in terms of its target

market and operational scale. Analyzing Palm Suites allows us to explore cost structures and

pricing strategies tailored to mid-range hospitality services. This examination will provide

valuable insights into efficient cost management practices, optimal resource utilization, and

competitive pricing models suitable for mid-tier hotels.

3. Local Hotel Selections: Understanding Grassroots Operations In addition to these primary

selections, our study extends to a few handpicked local hotels. These entities are crucial for

comprehending cost and pricing strategies at the grassroots level. By analyzing these smaller-

scale operations, we aim to gain insights into lean management practices, cost-saving

measures, and pricing strategies that cater to budget-conscious customers. This segment

provides a stark contrast to the luxury and mid-range hotels, offering a comprehensive view

of the hospitality industry's diverse operational models.

The diversity in our selection of business units ensures a well-rounded analysis,

encompassing various segments of the hospitality industry. This approach not only enriches

our understanding of different cost structures and pricing strategies but also enhances our

ability to formulate competitive quotations and cost sheets reflective of the industry's broad

spectrum.

Reasons for Selecting these Business Units:-

1. Diversity in Service Offerings and Market Segmentation: The hospitality industry,

encompassing various market segments from luxury to budget accommodations, offers a rich
spectrum for analysis. By selecting La Classic Hotel (luxury segment), Palm Suites (mid-

range segment), and other local hotels (budget/economy segment), the study covers a broad

range of service offerings. This diversity enables a comprehensive understanding of cost

structures and pricing strategies across different market segments, providing invaluable

insights into how each segment tailors its operations and financial planning to meet its target

market's demands.

2. Complexity of Cost Structures in Hospitality: The hospitality industry is known for its

complex cost structures, including fixed and variable costs, direct and indirect expenses, and

unique industry-specific costs like room service, amenities, and event management. This

complexity presents an ideal scenario for students to apply theoretical cost management

concepts in a real-world setting, enhancing their understanding of practical cost accounting

and financial management.

3. Varied Pricing Strategies: Hotels use diverse pricing strategies influenced by factors like

location, target market, seasonality, and competitive dynamics. Analyzing different hotels

allows students to explore various pricing models – from premium pricing at luxury hotels

like La Classic to value-based pricing at local hotels. Understanding these strategies is crucial

for students to develop competitive and realistic quotations.

4. Operational Scale and Efficiency: The selection of hotels ranging from large-scale

operations like La Classic Hotel to smaller local hotels provides insights into how operational

scale impacts cost efficiency and resource allocation. Students can study how larger hotels

leverage economies of scale versus how smaller hotels manage limited resources, offering a

practical perspective on operational efficiency.

5. Real-World Application of Advanced CMA Techniques: The hospitality industry's

dynamic nature makes it an excellent candidate for applying advanced Cost Management
Accounting (CMA) techniques such as Activity-Based Costing, Throughput Accounting, and

Variance Analysis. This practical application helps students in understanding how these

techniques are used in real business scenarios to improve cost control and pricing decisions.

6. Exposure to Different Business Models and Competitive Environments: Each selected

hotel operates under a distinct business model and faces different competitive environments.

This selection allows students to analyze how external factors, such as competition, economic

conditions, and customer preferences, influence business strategies, particularly in cost

management and pricing.

7. Relevance to Current Economic Trends: With the hospitality industry being significantly

impacted by recent economic trends and global events, studying these hotels provides timely

insights into how businesses adapt their cost structures and pricing strategies in response to

changing market conditions

2.2 - Interview Preparation and Objectives:-

The success of our on-site visits and data collection from La Classic Hotel, Palm Suites, and

other selected local hotels hinged on well-structured and purpose-driven interviews with

management and personnel. Recognizing the significance of these interviews in gathering

detailed insights into cost structures and pricing strategies, our preparation and objectives

were meticulously planned.

Preparation Steps:

1. Research and Background Study:

 Comprehensive research on each hotel was conducted to understand their

market positioning, service offerings, and operational scale.

  Analysis of financial reports and public data provided a preliminary

understanding of their cost structures and pricing models.

2. Development of Interview Questions:

 Tailored questions were prepared, focusing on specific areas such as direct and

indirect costs, labor management, overhead allocation, and pricing strategies.

 Open-ended questions were included to elicit detailed responses and insights.

3. Identification of Key Personnel:

 Key personnel for interviews were identified, including hotel managers,

finance officers, and operational heads.

 Efforts were made to include a diverse range of perspectives, from top

management to front-line employees.

4. Scheduling and Logistics:

 Interviews were scheduled in advance, with consideration for the availability

and convenience of the hotel staff.

 Necessary arrangements were made to ensure a conducive environment for

candid and uninterrupted discussions.

Objectives of the Interviews:

1. Understanding Direct and Indirect Costs:

 To gain insight into the various cost components such as raw materials, labor,

utilities, and maintenance.

 To understand how these costs are allocated and managed in different hotel

segments.

2. Analyzing Pricing Strategies:

  To learn how pricing decisions are made in accordance with cost structures

and market competition.

 To explore how pricing strategies are adjusted in response to seasonal

variations and market demands.

3. Evaluating Operational Efficiencies:

 To assess how operational processes impact cost efficiency and service quality.

 To understand the role of technology and innovation in optimizing operations

and reducing costs.

4. Gathering Real-World Insights:

 To capture practical examples and anecdotes that illustrate how theoretical

concepts are applied in real business scenarios.

 To identify challenges faced in cost management and pricing, and the

strategies employed to overcome them.

5. Comparative Analysis Across Different Hotels:

 To compare and contrast the cost management and pricing strategies across the

luxury, mid-range, and budget segments.

 To understand how each hotel uniquely positions itself in the competitive

landscape.

Through these comprehensive interview preparations and clear objectives, our team aimed to

gather in-depth, actionable data that would facilitate the accurate preparation of cost sheets

and the formulation of competitive quotations for each business unit.

Questionnaire Prepared:-

A. General Information

1. Can you provide a brief overview of your hotel's services and facilities?

2. How long has the hotel been operational, and what is its capacity (number of rooms,

common areas, etc.)?

B. Material Costs

1. What are the major categories of materials used in your hotel (e.g., food supplies,

cleaning materials, amenities)?

2. How do you source these materials, and what are their average costs per unit/month?

3. Do these costs fluctuate seasonally or annually?

C. Labor Costs

1. How many employees work at the hotel, and what are the different roles?

2. What is the average salary/wage per role?

3. Are there any additional labor costs, such as overtime, bonuses, or benefits?

D. Overhead Costs

1. What are the key overhead costs in running the hotel (e.g., utilities, maintenance,

marketing)?

2. How do these costs vary over time?

3. Do you use any specific method to allocate overhead costs to different departments or

services?

E. Cost Per Unit Calculation

1. How do you calculate the cost per unit for a hotel room or service?

2. Are there different pricing strategies for different types of rooms or services?

F. Pricing Strategy and Quotation

 1. How do you determine the pricing for rooms and services?

2. What factors influence your pricing strategy (e.g., competition, demand)?

3. How do you ensure your quotations are competitive in the market?

G. Financial Analysis and Inference

1. Can you provide any recent examples of financial decisions made based on cost and

pricing analysis?

2. How do you evaluate the profitability of different services or amenities offered by the

hotel?

H. Additional Insights

1. What challenges do you face in cost management and pricing?

2. Are there any unique aspects of your hotel’s cost structure or pricing strategy that set

it apart from competitors?

Data Collection:-

1. Detailed Price Lists: For rooms, amenities, and services.

2. Financial Statements: Recent statements for a comprehensive view of costs and

revenue.

3. Marketing Materials: To understand how the hotel positions itself price-wise in the

market.

4. Cost Allocation Methods: Details on how overheads are allocated to different

departments or services.

5. Historical Pricing Data: To analyze pricing trends and strategies over time.
2.3 - Key Insights from Management and Employees

Our in-depth discussions with the management and employees of the hotel, which has been

operational since January 17, 2011, as a sole branch of a partnership firm, provided valuable

insights into its revenue streams, cost structures, operational challenges, and strategic

approaches.

Insights from Management:-

1. Revenue Streams and Business Segmentation:

 The hotel's main sources of revenue are lodging and restaurant services,

complemented by four banquet halls.

 With a capacity of 76 rooms, the lodging segment caters primarily to corporate

clients, who are the mainstay for meetings and events, indicating a strong B2B market

focus.

 The restaurant, offering buffet lunch and dinner priced at ₹900 + tax, attracts both in-

house guests and local patrons, contributing significantly to the revenue mix.

2. Cost Structure and Major Expenses:

 The most substantial expenses include laundry and air conditioning maintenance,

which, despite being mostly fixed costs, form a significant part of the operational

budget.

 Monthly payroll expenses average ₹20 lakhs, covering a diverse workforce of 95

employees across various departments, indicating a substantial investment in human

resources.

 Maintenance costs account for approximately 65% of total expenses, highlighting the

emphasis on maintaining high standards of facility upkeep.

3. Pricing Strategy:

 Room charges are segmented based on occupancy and type, with single occupancy at

₹4500 + tax, double occupancy at ₹5500 + tax, and suite rooms at ₹7500 + tax,

reflecting a tiered pricing strategy.

 An annual price increase of 10 to 15% is implemented, balancing competitive

positioning with cost escalations.

4. Operational Challenges:

 Day-to-day management, government pressures, and adapting to immediate market

changes are cited as frequent challenges.

 The hotel's proactive approach to guest feedback and grievance resolution is a key

competitive strategy, enhancing guest satisfaction and loyalty.

5. Profit Margins:

 The profit margin ranges between 27 to 30%, indicative of healthy financial

management and efficient cost control mechanisms.

6. Strategic Partnerships and Compliance:

 The hotel's sourcing strategies, focused on partnering with 99% GST-registered

companies, demonstrate compliance with tax regulations and a commitment to

supporting legitimate business practices.

7. Data and Analysis:

 Assuming an average room occupancy rate of 70%, the lodging segment would

contribute a substantial portion of the revenue. With an average room rate (ARR)

calculation, this segment alone could be generating significant revenue monthly.

 The banquet halls, hosting an average of 10 events per month, could add a

considerable amount to the revenue, especially during peak seasons like weddings and

corporate events.
8. Future Prospects and Expansion Plans:

 The management's focus on consistent quality and customer satisfaction could be a

stepping stone for future expansion, either through additional services or potential

branching out.

Insights from Employees:-

The interactions with the employees of the hotel provided an invaluable perspective on the

operational dynamics and day-to-day challenges that complement the information shared by

the management.

1. Workforce Composition and Departmental Dynamics:

 The hotel employs around 95 staff members, spread across various departments

including maintenance, security, front office, housekeeping, restaurant, kitchen, and

service teams.

 Employees emphasized the importance of inter-departmental collaboration for smooth

operations, especially between front office, housekeeping, and maintenance

departments to ensure guest satisfaction.

2. Daily Operational Challenges:

 Staff frequently cited challenges in managing day-to-day operations, especially during

peak hours and seasons. This includes handling high guest volumes, quick turnover of

rooms, and maintaining service quality.

 The kitchen and restaurant staff highlighted the pressures of maintaining food quality

and service speed, particularly during buffet hours.

3. Training and Skill Development:

  Employees expressed satisfaction with the training and development programs

provided by the hotel, which equip them with the necessary skills to handle various

operational challenges and improve service quality.

 Regular training sessions on customer service, safety protocols, and skill enhancement

were mentioned as key contributors to employee efficiency and job satisfaction.

4. Feedback and Grievance Handling:

 Front office and service staff discussed their role in handling guest feedback and

grievances. The immediate response to complaints and a proactive approach to

resolving issues were emphasized as crucial for maintaining high guest satisfaction.

 Employees felt that their direct interactions with guests provided valuable feedback to

the management for continuous improvement.

5. Cost Awareness and Efficiency:

 Staff in the maintenance and housekeeping departments were particularly aware of the

cost implications of their work. For instance, the regular maintenance of air

conditioning systems, despite being a fixed cost, was viewed as essential for long-

term cost savings and guest comfort.

 The importance of efficient resource usage, such as minimizing waste in the kitchen

and optimizing laundry operations, was highlighted as a key part of cost control.

6. Salary and Compensation:

 Employees shared that the salary structure was competitive, contributing to high

morale and low turnover rates. The average monthly salary expenditure of ₹20 lakhs

corroborates the hotel's commitment to fair employee compensation.

7. Perspective on Hotel’s Competitive Positioning:

  Employees were generally aware of the hotel's competitive positioning and pricing

strategy. They understood the importance of their roles in maintaining the hotel's

reputation and attracting corporate clients.

 Many mentioned the hotel's emphasis on quality service as a distinguishing factor in a

competitive market.

2.4 - Data Collected on Cost Structures:-

Cost Category Monthly Cost (₹)

Room Maintenance 500,000
Laundry Services 150,000
Air Conditioning Maintenance 200,000
Employee Salaries 2,000,000
Food and Beverage Supplies 600,000
Utilities 300,000
Marketing and Advertising 100,000
Insurance 50,000
Miscellaneous 80,000

3. Product Offerings:-

Category Product/Service Description

Room Types - Standard Room Basic room with essential amenities.
- Deluxe Room Upgraded room with additional luxury
features.
- Suite Spacious and luxurious, with separate living
areas.
Dining - In-House Offers a variety of local and international
Restaurant cuisine.
- Room Service 24/7 dining options available in-room.
- Bar/Lounge Serves a range of drinks and light snacks.
 Wellness and Spa - Fitness Center State-of-the-art gym equipment and facilities.
- Spa Services A range of spa treatments and massages.
- Swimming Pool Outdoor/indoor pool for relaxation and
exercise.
Business Facilities - Conference Rooms Equipped for meetings, conferences, and
events.
- Business Center Provides computers, printers, and internet
access.
Additional - Concierge Services Assistance with travel, bookings, and
Services information.
- Shuttle Services Transport to local attractions and airports.
- Laundry Services Professional cleaning and laundry services.

4. Cost Sheet Preparation:

Direct Cost Analysis

Direct costs in a hotel environment are those that are directly attributable to the production of

services offered by the hotel, including lodging, dining, and event hosting. In this section, we

analyze the two primary components of direct costs: Material Costs and Labor Costs.

Material Costs:- Material costs in the hotel industry encompass all the tangible goods

required for the operation and maintenance of the hotel's services. For our analysis, we focus

on the following key areas:

Room Maintenance Supplies:

Costs incurred for materials used in the upkeep and repair of rooms, such as bedding,

furniture, and decor.

Estimated Monthly Cost: ₹200,000.

Food and Beverage Supplies:

 Costs associated with purchasing ingredients and supplies for the hotel's restaurant and

catering services.

Given the hotel’s emphasis on high-quality dining experiences, this forms a significant

portion of material costs.

Estimated Monthly Cost: ₹600,000.

Cleaning and Sanitation Supplies:

Includes expenses for cleaning materials and hygiene products essential for maintaining

cleanliness standards.

Estimated Monthly Cost: ₹100,000.

Utilities (Variable Component):

Costs for water, electricity, and gas that vary depending on usage, essential for the

operation of the hotel.

Estimated Monthly Cost: ₹200,000.

Total Estimated Material Costs: ₹1,100,000 per month.

Labor Costs:-

Labor costs represent a significant expenditure in the hotel industry, encompassing wages,

salaries, and benefits paid to employees. The breakdown is as follows:

Front Office Staff:

Includes receptionists, concierge, and customer service personnel.

Estimated Monthly Cost: ₹400,000.

Housekeeping Staff:

Staff responsible for cleaning and maintaining rooms, public areas, and laundry.

Estimated Monthly Cost: ₹350,000.

 Restaurant and Kitchen Staff:

Includes chefs, cooks, servers, and other personnel involved in food preparation and

service.

Estimated Monthly Cost: ₹500,000.

Maintenance and Security Staff:

Personnel responsible for the maintenance of the hotel’s infrastructure and ensuring guest

security.

Estimated Monthly Cost: ₹250,000.

Administrative and Management Staff:

Includes hotel management, finance, and administrative personnel.

Estimated Monthly Cost: ₹500,000.

Total Estimated Labor Costs: ₹2,000,000 per month.

These labor costs reflect the staffing requirements necessary to maintain the high standards of

service that the hotel is known for, especially considering the diverse range of services

offered. The balance between skilled labor in the kitchen and restaurant and the operational

staff in housekeeping and maintenance is crucial for efficient hotel management.

Indirect Costs Analysis:-

Indirect costs in the hotel industry are expenses that are not directly tied to a specific service

or product but are necessary for the overall functioning and management of the hotel. This

section focuses on analyzing Overheads and Other Relevant Expenses.

Overheads

Overheads are ongoing operational costs required for the day-to-day running of the hotel, but

which cannot be directly attributed to any specific guest or service. These include:

Utilities (Fixed Component):

These are the base costs for utilities such as water, electricity, and gas, irrespective of

occupancy rates.

Estimated Monthly Cost: ₹100,000.

Property Rent or Mortgage Payments:

Assuming the hotel is on leased property or is servicing a mortgage, these costs contribute

significantly to overheads.

Estimated Monthly Cost: ₹300,000.

Insurance:

Costs for various insurances including property, liability, and employee-related

insurances.

Estimated Monthly Cost: ₹50,000.

Technology and Systems Maintenance:

Expenses for maintaining IT infrastructure, reservation systems, and operational software.

Estimated Monthly Cost: ₹80,000.

Administrative Supplies:

Costs for office supplies, printing, and stationery.

 Estimated Monthly Cost: ₹20,000.

Total Estimated Overhead Costs: ₹550,000 per month.

Other Relevant Expenses:-

Other relevant expenses include miscellaneous costs that are necessary for the hotel’s

operations but do not fit neatly into direct costs or overheads. These may include:

Marketing and Advertising:

Expenditures for promoting the hotel through various channels, crucial for attracting new

guests and retaining existing ones.

Estimated Monthly Cost: ₹100,000.

Professional Services:

Fees for legal, accounting, and consulting services.

Estimated Monthly Cost: ₹70,000.

Training and Development:

Costs associated with employee training programs and skill development initiatives.

Estimated Monthly Cost: ₹30,000.

Depreciation and Amortization:

Non-cash expenses reflecting the gradual wear and tear of assets and capital expenditures.

Estimated Monthly Cost: ₹60,000.

Contingency and Miscellaneous:

Allocation for unforeseen expenses and miscellaneous costs.

Estimated Monthly Cost: ₹40,000.

Total Estimated Other Relevant Expenses: ₹300,000 per month.

Additional information-

 The profit for the financial year stood at 25% of the cost of sales

Cost Sheet of La Classic Hotel

For the year ending 31 March 2023

Particulars Amount (Rs.) Amount (Rs.)

Direct Materials:

Materials Purchased: Room Maintenance, F&B 13,20,000

Supplies, Utilities (Variable), etc

ADD: Opening stock of raw materials 2,00,000

LESS: Closing stock of raw materials 1,50,000 13,70,000

Direct Labour:

Wages 2,40,00,000 2,40,00,000

Direct Expenses: 20,00,000 20,00,000

Prime Cost (Direct Material + Direct 2,73,70,000

Labour)

Factory Overheads:
 Power and fuel for the hotel 3,00,00,000

Maintenance of hotel facilities 1,50,00,000

Supervisor and staff salaries 1,00,00,000 5,50,00,000

Works Cost: 8,23,70,000

Office and Administration Expenses

Office rent 1,00,00,000

Office utilities 80,00,000

Manager’s Salary 50,00,000

Director’s Remuneration 1,00,00,000

Other Office Expenses 1,50,00,000 4,80,00,000

Cost of Production 38,00,00,000

Cost of Goods Sold (services) 38,00,00,000

Selling and distribution overheads 4,50,000

Cost of Sales 38,04,50,000

Profit (25%) 9,53,00,000

TOTAL SALES 47,57,50,000

Working Notes:

1. Direct Materials:

 Materials Purchased: The total cost of materials bought for room maintenance, food

and beverage supplies, and variable utilities.

 Amount: Rs. 13,20,000

 Opening Stock of Raw Materials: The value of raw materials available at the

beginning of the period.

  Amount: Rs. 2,00,000

 Closing Stock of Raw Materials: The value of unused raw materials at the end of the

period. This is subtracted from the sum of materials purchased and opening stock to

find the net cost of materials used.

 Amount: Rs. 1,50,000

 Total Direct Materials Cost:

Materials Purchased+Opening Stock−Closing Stock=Rs.13,70,000

2. Direct Labour:

 Wages: The total wages paid to employees directly involved in producing services or

goods.

 Amount: Rs. 2,40,00,000

3. Direct Expenses:

 These are expenses directly associated with the production of goods or services, not

including materials and labor.

 Amount: Rs. 20,00,000

4. Prime Cost:

 The sum of Direct Materials, Direct Labour, and Direct Expenses.

Direct Materials+Direct Labour+Direct Expenses=Rs.2,73,70,000

5. Factory Overheads:

 Expenses related to the operation of the hotel, not directly tied to production.

 Power and Fuel: Rs. 3,00,00,000

 Maintenance: Rs. 1,50,00,000

 Supervisor and Staff Salaries: Rs. 1,00,00,000

 Total Factory Overheads: Rs. 5,50,00,000

6. Works Cost:

 The total cost of producing goods or services, including prime cost and factory

overheads.

Prime Cost+Factory Overheads=Rs.8,23,70,000

7. Office and Administration Expenses:

 Costs associated with the administrative aspects of running the business.

 Total: Rs. 4,80,00,000

8. Cost of Production:

 The sum of Works Cost and Office and Administration Expenses.

Works Cost+Office and Admin Expenses=Rs.38,00,00,000

9. Cost of Goods Sold (Services):

 The total cost incurred for the services sold.

 Amount: Rs. 38,00,00,000

10. Selling and Distribution Overheads:

 Costs related to marketing, selling, and distributing the services.

 Amount: Rs. 4,50,000

11. Cost of Sales:

 The total cost incurred for selling the services, including the cost of goods sold and

selling and distribution overheads.

Cost of Goods Sold+Selling and Distribution Overheads=Rs.38,04,50,000

12. Profit:

 Calculated as a percentage (25%) of the cost of sales.

  Cost of Sales×25%=Rs.9,53,00,000

13. Total Sales:

 The sum of the Cost of Sales and Profit.

Cost of Sales+Profit=Rs.47,57,50,000

Cost per unit calculation:-

Formula for Cost Per Unit

Cost Per Unit=Total Cost/Number of Units Produced

Components of Total Cost

1. Direct Materials: Rs. 13,70,000

2. Direct Labour: Rs. 2,40,00,000

3. Direct Expenses: Rs. 20,00,000

4. Factory Overheads: Rs. 5,50,00,000

5. Office and Administration Expenses: Rs. 4,80,00,000

6. Selling and Distribution Overheads: Rs. 4,50,000

Total Cost

Total Cost=Direct Materials+Direct Labour+Direct Expenses+Factory Overheads+Office and

Administration Expenses+Selling and Distribution Overheads

Calculating the total cost from the given data:

Total Cost=13,70,000+2,40,00,000+20,00,000+5,50,00,000+4,80,00,000+4,50,000

Example Calculation

Let's assume the number of units produced is 'X'. The cost per unit will then be:
Cost Per Unit = Total Cost / X

No. of units sold = 78,000 (including banquet halls, rooms, restaurant and other

services)

Cost per unit = Rs.38,04,50,000 / 78,000

= Rs, 4877.56

Preparation of Quotation

The company has to send a quotation to ABC Ltd. for an order placed by them

with La Classic. The information about the same is given below-

ABC Ltd. Corporate Order Details:

 Duration of Stay: 3 days.

 Number of Rooms Booked: 10 Deluxe Rooms.

 Number of Guests: 20.

 Food and Beverage Services: Buffet meals (breakfast, lunch, dinner) for all guests.

 Conference Facility Use: 2 days, including audio-visual equipment and refreshments.

 Additional Services: Customized welcome packages for each guest.

Quotation for ABC Ltd.:

Particulars Amount (Rs.)

Direct Materials (Room supplies, F&B supplies) 3,00,000

Direct Wages (Service staff, chefs, housekeeping) 4,00,000

Direct Expenses (AV equipment, welcome packages) 1,50,000

Prime Cost 8,50,000

Factory Overheads (Utilities, maintenance) 2,00,000

 Works Cost 10,50,000

Office Overheads (Admin, management) 1,00,000

Cost of Goods Sold 11,50,000

Selling and Distribution Overheads (Marketing, booking) 1,00,000

Cost of Sales 12,50,000

Profit (25% of Cost of Sales) 3,12,500

TOTAL SALES AMOUNT 15,62,500

Service Breakdown:

1. Room Accommodation: 10 Deluxe Rooms for 20 guests over 3 nights.

2. Food and Beverage Services: All meals included (buffet breakfast, lunch, dinner) for

the duration of the stay.

3. Conference Facilities:

 Use of a conference room equipped with AV equipment for 2 days.

 Refreshments and snacks provided during the conference.

4. Additional Services: Customized welcome packages for each guest, including hotel

merchandise and local delicacies.

This quotation of ₹15,62,500 covers the cost of providing these services and includes a profit

margin of 25%. It's designed to be competitive, reflecting the quality of services and the

value provided to ABC Ltd., while also fitting within their budget constraints. The cost

structure ensures that La Classic Hotel can deliver an exceptional experience to the corporate

client without compromising on profitability.

Justification for the 25% Profit Margin on the Quotation for ABC Ltd.:
1. Cost Recovery and Value Proposition: The 25% profit margin is strategically set to

ensure that La Classic Hotel adequately recovers all incurred costs while delivering

high-value services. This margin allows the hotel to maintain the quality and

standards expected by corporate clients like ABC Ltd., without compromising on

service quality or guest experience.

2. Market Competitiveness: In the hospitality industry, especially for corporate orders,

pricing needs to balance competitiveness with profitability. A 25% profit margin

ensures that La Classic Hotel's offering is competitively priced when compared to

similar services in the market, attracting clients while ensuring financial sustainability.

3. Sustainability and Growth: Profit margins are essential for the hotel’s long-term

sustainability and growth. This margin allows for reinvestment in the hotel's

infrastructure, staff training, service improvement, and innovation. It ensures that the

hotel can continue to upgrade its offerings and stay relevant in a highly competitive

market.

4. Risk Mitigation: Corporate orders often involve detailed planning and resource

allocation, which includes certain risks such as last-minute changes or cancellations.

A 25% profit margin helps mitigate these risks by providing a financial cushion that

can absorb potential unforeseen costs or losses.

5. Seasonal Fluctuations: The hospitality sector is subject to seasonal variations in

demand. A higher profit margin on corporate orders during peak seasons compensates

for lower revenue periods, helping to maintain a steady cash flow throughout the year.
 6. Customization and Special Services: The quotation for ABC Ltd. includes

customized services like tailored F&B offerings and specialized conference facilities.

The profit margin justifies the extra effort, resources, and attention to detail required

for these personalized services.

7. Operational Excellence and Efficiency: La Classic Hotel prides itself on operational

excellence and efficiency in service delivery. The profit margin reflects the hotel's

commitment to high operational standards, ensuring that every aspect of the corporate

event is executed flawlessly.

8. Client Satisfaction and Reputation: Maintaining a reasonable profit margin is

crucial for ensuring client satisfaction. It allows the hotel to invest in quality control

and guest services, enhancing its reputation in the corporate sector and leading to

repeat business and referrals.

In summary, the 25% profit margin is a calculated decision that balances the need for

competitive pricing, quality service delivery, business sustainability, and risk management, all

of which are crucial for maintaining La Classic Hotel’s esteemed reputation and profitability.

5. Reflection

Personal Insights and Learnings:

This project, centered on analyzing cost structures and pricing strategies of various hotels,

has been an immensely educational and eye-opening experience. It provided a practical

perspective on theoretical concepts learned in class, translating them into real-world business

scenarios. Here are some key personal insights and learnings from this project:
1. Importance of Comprehensive Cost Analysis:

 The detailed examination of each hotel's cost components, such as labor, maintenance,

and operational expenses, highlighted the complexity and significance of accurate

cost analysis in business decision-making.

 Understanding the balance between fixed and variable costs, and their impact on

profit margins, was particularly enlightening.

2. Diversity in Business Strategies:

 Visiting different hotels, from luxury to budget, showcased the diversity of business

strategies in the hospitality industry. It was fascinating to see how each hotel tailored

its services, pricing, and cost management to its target market.

 This exposure broadened my understanding of market segmentation and positioning

in a competitive industry.

3. Value of Employee Perspectives:

 Interacting with the hotel staff provided a unique view of the operational challenges

and efficiencies. These interactions emphasized the importance of every role in

contributing to the hotel's overall success.

 It was a revelation to see how employee satisfaction and training directly impact

service quality and operational efficiency.

4. Realities of Pricing Strategies:

 Analyzing the pricing strategies, including the rationale behind annual price

increments and segmented pricing for different room types, offered practical insights

into dynamic pricing models.

 This experience underscored the importance of aligning pricing strategies with cost

structures and market demands.

5. Dynamic Nature of the Hospitality Industry:

  The project underscored the hospitality industry's dynamic nature, especially in

adapting to economic trends, customer preferences, and technological advancements.

 Understanding how hotels navigate these changes was a valuable lesson in business

agility and resilience.

6. Critical Role of Technology and Innovation:

 The use of technology, from operational management to guest services, was evident in

enhancing efficiency and guest experiences.

 This highlighted the increasing importance of embracing technological innovations in

modern business practices.

7. Ethical Business Practices:

 Learning about the hotels' commitment to ethical practices, such as sourcing from

GST-registered companies, reinforced the importance of ethical considerations in

business operations.

8. Personal Growth and Professional Development:

 This project was a significant opportunity for personal growth, enhancing skills in

research, analysis, communication, and teamwork.

 The experience has sharpened my critical thinking and problem-solving abilities,

which are essential for my future career in business management.

Implications for Future Business Practices

The in-depth analysis of various hotels, including La Classic Hotel, Palm Suites, and other

local establishments, yields critical implications for future business practices in the

hospitality industry. These implications are vital for adapting to evolving market conditions

and enhancing competitive advantage.

1. Embracing Technological Innovations: The increasing role of technology in operational

efficiency and customer service is evident. Future business practices should integrate

advanced technology for reservation systems, customer relationship management, and

operational automation to enhance efficiency and guest experience.

2. Dynamic Pricing Strategies: The study highlights the importance of dynamic pricing

strategies to respond to market demands and competition. Hotels should continuously analyze

market trends and competitor pricing to adjust their rates strategically, maximizing revenue,

especially during peak and off-peak seasons.

3. Sustainable Practices and Cost Management: With significant expenses in maintenance

and utilities, there is a growing need for sustainable and energy-efficient practices. Future

strategies should include investment in eco-friendly technologies and practices to reduce

long-term costs and appeal to environmentally conscious consumers.

4. Focus on Staff Training and Development: Employee insights underscore the value of

continuous training and development. Future business models should prioritize staff training

programs to enhance service quality, operational efficiency, and employee satisfaction, which

in turn can lead to increased customer loyalty.

5. Leveraging Data Analytics: The use of data analytics for decision-making is crucial.

Future practices should include more robust data analysis to understand customer

preferences, spending patterns, and operational efficiencies, enabling data-driven decisions to

optimize costs and pricing.

6. Enhancing Customer Experience and Loyalty: Given the competitive nature of the

hospitality industry, a greater emphasis on personalized guest experiences and loyalty

programs can be a key differentiator. Tailoring services to guest preferences and recognizing

repeat customers can enhance loyalty and drive repeat business.

7. Agile Operational Models: The ability to adapt to changing market conditions and

unexpected challenges (like those posed by government regulations or economic fluctuations)

is critical. Future business practices should be designed for agility, allowing quick adaptation

to external changes.

8. Strategic Sourcing and Supply Chain Management: The importance of strategic

sourcing, especially in partnering with GST-registered companies, highlights the need for

efficient supply chain management. Future practices should focus on developing strong,

compliant, and cost-effective supplier relationships.

9. Proactive Reputation and Feedback Management: In the age of digital media,

managing online reputation and guest feedback proactively is essential. Future business

practices should include active monitoring and responding to online reviews and feedback,

leveraging them for continuous improvement and marketing.

Conclusion

The comprehensive analysis of the selected hotels, with a focal point on La Classic Hotel, has

provided us with an in-depth understanding of the operational, financial, and strategic aspects

of the hospitality industry. This study has bridged the gap between theoretical knowledge and

practical application, particularly in the areas of cost sheet preparation, pricing strategies, and

understanding the dynamics of the hospitality sector.

From our interactions with both management and employees, it is evident that the success of

a hotel hinges on a delicate balance between cost management, service quality, and strategic

pricing. La Classic Hotel, with its emphasis on unrivaled hospitality and efficient operational

practices, serves as a prime example of how a hotel can sustain profitability while

maintaining high service standards. The insights into their revenue streams, major expenses,
and pricing strategies have been instrumental in understanding the intricacies of financial

management within the luxury hotel segment.

The comparative study with Palm Suites and other local hotels highlighted the diversity in

operational scales and market positioning within the industry. Each hotel, depending on its

target market and service offerings, adopts unique cost structures and pricing strategies. The

challenges faced by these establishments, ranging from daily operational hurdles to adapting

to market changes, underscore the dynamic nature of the hospitality industry.

Furthermore, the employee perspectives added a valuable dimension to our understanding,

emphasizing the importance of workforce management, training, and the role of each staff

member in upholding the hotel’s reputation and service quality. Their insights into daily

challenges and operational efficiencies provided a more nuanced view of the hotel’s inner

workings.

In conclusion, this project has not only enhanced our comprehension of cost management and

pricing strategies in the hospitality sector but has also equipped us with practical skills and

knowledge applicable in any business context. The experience has been invaluable in

understanding the complexities of the hospitality industry and the factors that contribute to a

successful business operation.

Geotagged Photos (Video attatched in GC):-

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