COST ACCOUNTING

Tutorial Assignment
Presented By:
Niharika Tyagi (22BC587)
Annika Kumar (22BC678)
Tute Group: H-38
Section: H

TOPIC: Analyse the operations and cost sheet of a small business and draw
conclusions.

Company Selected:
Tyagi Hotels and Resorts (THAR Pvt. Ltd.)

Business: Hotel
The Bugayal, Kanatal

Research Methodology
The methodology followed while creating the project can be divided into a few broad phases:
● Decision regarding choice of industry and company to be selected.
● Research on the work of the business and its operations.
● Gaining a thorough understanding of the concept of cos sheet and learning how items
are to be classified under various heads and subheads.
● Conducting an interview with the owner, Mr. Sanjiv Tyagi regarding the cost structure
and other forefronts of his business.
● Analysing the cost sheet prepared and interview responses, preparing a comparative
report over time.

For the purpose of this research, a personal interview was conducted with Mr. Sanjiv Kumar
Tyagi. The link to the recording is attached below:
Interview Recording- Cost Accounting
(https://drive.google.com/drive/folders/1uq5h1N5HcKv7SN_VmgMBllnGyv3NkGM8?usp=
sharing)
 ACKNOWLEDGEMENT

We would like to express our sincere gratitude to Mr. Sanjiv Kumar for his invaluable
contribution to our project. His willingness to participate in the interview, share relevant data,
and provide guidance throughout the process has been immensely appreciated. His insights
and expertise have undoubtedly enriched our project and added depth to our analysis.

Additionally, we would like to extend our heartfelt thanks to Ms. Somya for granting us the
opportunity to undertake this project. Her support and encouragement have been instrumental
in guiding us through this endeavour and ensuring its successful completion.

INTRODUCTION
COST ACCOUNTING AND COST SHEET

Cost Accounting is a form of accounting used to report, record and analyse costs of different
items in an organisation. It is essential in the process of cost allocation and differentiating
costs into various cost heads. It is essentially involved in separating the costs in fixed and
variable costs, analysing the impact of these on operations thereafter and determining the cost
of a single product.

Cost Sheet is a document that is prepared to show the allocation of costs into various heads as
given below and is used to determine the cost of producing one unit of a product. Further, by
considering the profit margin, it can be used to determine the ideal cost of selling a product.
The standard and latest format followed for a cost sheet is given and followed as per CAS-4.

THE BUGAYAL, KANATAL

Getting to Know the Business:

The Bugayal is a glamorous and luxury camping resort located near the Kaudia Forest range
in Chamba, Uttarakhand. Standing at an altitude of over 8000 ft, it is beautifully enveloped in
snow for a significant part of the year. As stated by the official website itself,
‘’The Bugyal,’ a term derived from the local Garhwali language, translates to a lush,
high-altitude meadow. True to its name, The Bugyal Kanatal is a haven of serenity and
natural grandeur. Perched on the undulating hills overlooking the mighty Greater Himalayas,
our resort is an oasis of comfort and elegance.’

Unique Sellings Points of the Resort:

The resort provides several additional services and facilities that set it apart from local
competitors nearby, some of which are mentioned as follows:
 ● Pure Vegetarian food and service of meals without onion and garlic for abstaining
customers.
● In-House Kitchen Garden, allowing the business to market itself to customers who
prefer organic food products.
● Locally sourced traditional vegetables and fruits, allowing the business to form
healthy relationships and agreements with local producers and providers and
facilitating price negotiation.
● Serving Multi-Cuisine meals with a special focus on traditional and locally popular
items to ‘market’ and promote the culture and attract customers interested in
exploring the heritage of the area.
● Luxury Camping facilities with premium furniture carved on regionally popular
wood, giving it a royal and distinguished aura.
● Jungle Saffari through the Kaudia Range in the hotel’s own jeep, drawing in those
who seek adventure.
● Located away from the main road, providing a suitable atmosphere for those who
want peace and quite.
● Game-Zone for children.

The Team: Know Who’s Behind the Scenes

Owner: Mr. Sanjiv Kumar Tyagi
Managers: Ms. Deepa, Mr. Vikrant

Contact
Website: https://thebugyal.com/
Instagram: https://www.instagram.com/thebugyalkanatal/?hl=en
Facebook: https://www.facebook.com/TheBugyalkanatal/
The website has features to directly reach out for queries and bookings via Whatsapp.

Operations Costing Sheet

For the month ending 31st June, 2023

PARTICULARS Amount (Rs.) Amount (Rs.)

A) Fixed Charges

Salaries to Staff (70% of total salaries) 1,32,090

Electricity (40% of monthly consumption) 5,200

Water (50% of monthly consumption) 39,600

Staff Cooking Expenses 10,000

Fuel and Fixed Car Charges 10,000

Advertisement Expenses (50% of total) 15,000

Commission to travel agents (5% of total) 500 2,12,390

B) Variable Charges

Salaries to Staff (30% of total salaries) 56,610

Electricity (60% of monthly consumption) 7,800

Water (50% of monthly consumption) 39,600

Kitchen and Cooking Expenses 1,08,959

Purchase of Toileteries 33,000

Fuel and Car Charges 1,73,811

Advertisement Expenses (50% of total) 15,000

Commission to travel agents (95% of total) 9,500 4,44,280

TOTAL OPERATING COST 6,56,670

NUMBER OF ROOM DAYS 128

COST PER ROOM DAY 5,130

The monthly occupancy rate of the hotel was 48% in June, 2023. The hotel follows the Just
In Time system for inventory procurement. As and when need arises, goods are procured.
Some percentage of operational expenses are procured at a fixed charge basis, paying a small
percentage of average monthly expenses as fixed in advance to the government.

COST SHEET
Cost Sheet for the year ended 31st December, 2023

PARTICULARS AMOUNT (Rs) AMOUNT (Rs)

I. Direct Materials
Miscellaneous Room-Related 330200
purchases and expenses
Purchase of toiletries 17322
 Direct Labour 1907578
Direct Expenses
Kitchen and Cooking Expenses 688822

PRIME COST 2943922

Work Overheads:
Fuel for Car and Safari 622887
Water 282600
Electricity 66100
Depreciation of Property 450000
WORKS COST/COGS 1421587 4365509
Marketing Expenses:
Online Marketing Expenses 180000
Commission to Travel Agents and
marketers 61300
COST OF SALES 4606809
OPERATIONAL PROFIT 1089491
REVENUE 5696300

DECODING THE INTERVIEW AND COST SHEET

For the purpose of this research, we conducted an interview with Mr. Sanjiv Tyagi, the
business owner and asked us questions about his operations.
The link to the interview has been attached below:

Interview Link:
https://drive.google.com/drive/folders/1uq5h1N5HcKv7SN_VmgMBllnGyv3NkGM8?usp=s
haring

Upon analysing the interview and the cost sheet simultaneously, we reached the following
findings:
 1. Staff and Salaries:
As mentioned by him, the staff expenses make up about 50-60% of the total expenses of the
business annually. Upon analysing the approximate cost sheet, we find that these make up for
41.4% of the cost of sales and 64.79% of the Prime Cost.
This indicates that staff expenses are the most important expense for the business. Hence,
managing and minimising these remains the main segment of cost cutting and reduction.

Employment Pattern and Strategy:

In the business, employees are tired on a tentative and casual basis. These people belong to
the surrounding villages and are usually agricultural workers who come to the hotel during
lean agricultural and post harvesting jobless seasons. Therefore, working here adds to their
annual income.
This, however, is not the only mechanism of hiring. The two managers - Ms. Deepa and Mr.
Vikrant, are employed on a permanent basis and manage the operations hand on. Almost 70%
of the staff is permanent and the rest is temporary, hired during peMs. Deepa is directly
involved in hiring and dismissing casual workers who usually take up jobs like cleaning,
housekeeping and serving in the restaurant.
There are other employees as well, for example the furniture maker and wood supplier, who
are paid on a contract basis as and when supplies are retrieved from them for new
construction.

Bonus Strategy:
As per the interview, Mr. Sanjiv has tried out bonus strategies. Since the hotel has been in
operation for merely one year substantially, the effectiveness of these will be understood over
time and nothing can be said yet.
These strategies are of 2 types:

a) General Staff: The general staff is paid bonuses on the basis of total revenue made which
is distributed as a percentage to all.

b) Managers: The managers are paid bonuses both on the basis of total revenue in a period
and cost saving. They are paid bonuses as a percentage of whatever amount of cost they
cut.

2. Category of Industry:
The hotel is a Labour-Intensive Industry. In the service sector, especially a sector like
tourism and hospitality, human personal touch is extremely important for the experience of
customers. The personality and individuality of a hotel is determined on the basis of the
quality of staff hired.
Hence, it is only natural that human resource management, training the employees, ensuring a
dress code and their wages make up for a substantial portion of the total cost structure.

3. Inventory Management:
As per Mr. Sanjiv, inventories of toiletries, bed sheets and other supplies needed are not
bought for a long period of time. The hotel has good relations with suppliers and Mr. Sanjiv
purchases these in Delhi and transports them to the site personally through his own vehicle.
This cuts costs as such items are found to be way more expensive (about double or triple the
price) in hilly regions due to shorter supply.
The inventories are purchased on a bi-monthly or monthly basis in regulated amounts, as
mentioned in the direct materials.
In peak seasons, they are purchased in advance in huge amounts and maintained to prevent
short supply at any given point.

4. Water, Electricity and Fuel Expenses:

The property has to purchase tankers of water on a regular monthly or 2-monthly basis. This
cost makes up for 6.13% of the cost of sales.
Electricity supply is cheaper and annually makes up for 1.43% of the cost of sales.
The hotel provides a jungle safari service as well as service of transporting the customers
from the main road to the site. This implies expenses for this transportation, which are
indirect to the operations of the hotel. Without this fuel, there is no way to reach the hotel
except by walking through the jungle, which is risky and a tedious task for aged people or
couples with children. These expenses make up for 13.5% of the cost of sales.

5. Marketing:
Mr. Sanjiv usually manages the marketing operations of the hotel himself, including the
Instagram and Facebook pages.
Additionally, the hotel is registered on several travel websites- such as Booking.com,
GoIbibo etc. A percentage of the commission also goes to these platforms.
A regular expenditure of 15000 is made monthly towards payment to these platforms.

However, the main method of bringing in customers has been word of mouth for the hotel.
The perks and services combined with the personal relationships built and hospitality
provided have developed a pattern of bringing in repeated customers and their families or
friends.
The business had also collaborated with social media influencer Chelsea Dahiya.

Further, as of late, the business has hired a marketing manager to try out different marketing
strategies. These expenses make up a portion of this cost as well.
Marketing makes up 5.2% of the cost of sales.

6. Annual Performance:
The business has been involved in operations for one year as of now and is already running at
an annual profit of Rs. 10,89,491. This is excellent performance as per the industry standard.
The Return is 19.13% of the annual revenue from operations of the business.
As per Mr. Sanjiv, the industry standard in the area is that the owner must always be prudent
and is required to make an expenditure of Rs. 2,50,000 in the initial years annually from his
own pocket. That is, such businesses are initially expected to run into losses till it is
established. However, The Bugayal operated at a profit of over Rs. 10 Lakh.

7. Cost Reduction Strategies Used So Far:

Earlier, the employment strategy was hiring all workers on a permanent basis. This proved to
be inefficient as most workers stayed idle during the seasons when demand was low, adding
unnecessarily to the costs.
Therefore, the cost reduction strategy has changed to keeping only 70% of the workforce as
permanent workers and 30% are hired during the peak seasons, substantially reducing
the costs.

Further, it is very expensive to source green vegetables in the mountainous regions. To tackle
this, the business has developed an in-house kitchen garden, exclusively producing green
vegetables such as lettuce, peas, cabbages etc. There is also an apple orchard which has
enough apples to provide complementary jars of jam to the guests and sell some leftover
apples locally, adding to the additional income of the hotel.
The menu is also being redesigned to increase the number of items served that use
vegetables available at lower costs locally while also intriguing the tourists with a peek into
the regional culture, such as khajiyaar ki kheer.

8. Future Expectations:
When asked what the future holds for the hotel industry, Mr. Sanjiv commented that with the
advancement in artificial intelligence and extensive automation in every sector, it is
understood that services that involve an individualistic human touch and personalism are
bound to become more popular and extensively demanded.
Therefore, the future of the industry looks bright.
At present, the hotel is probing into the following changes to increase sales:
● Agreements with local tour guides and adventure tourism locations for those that seek
thrill and families with children.
● Arrangement of transportation services to the Tehri Dam.
● Including vegan options in the menu.
● Karaoke system and facility to rent out the hotel for weddings, birthdays and other
occasions.
● Making small adjustments to provide additional perks and luxury services such as
electric bed warmers, campfire services etc.
 COMPARATIVE ANALYSIS
Cost Sheets for the months ending 31st June 2023 and 29th February 2024
PARTICULARS JUNE’23 FEB’24
II. Direct Materials
Miscellaneous Room-Related
purchases and expenses 33000 22500
Purchase of toiletries

Direct Labour 188700 111500

Direct Expenses
Kitchen and Cooking Expenses 118959 910

PRIME COST 340659 134910

Work Overheads:
Fuel for Car and Safari 183811 -
Water 79200 5000
Electricity 13000 7000
WORKS COST/COGS 616670 146910
 Marketing Expenses:
Online Marketing Expenses 30000 15000
Commission to Travel Agents and 10000 -
marketers
COST OF SALES 656670 161910
OPERATIONAL PROFIT 883892 (122665)
REVENUE 1540562 39245

To conduct a comparative analysis of the cost sheets for the two periods (June 2023 and
February 2024), we'll examine the changes in various cost categories and their impact on the
operational profit.

1. Direct Materials:

In June 2023, miscellaneous room-related purchases and expenses amounted to ₹33,000,

while in February 2024, it was reported to be ₹22,500. These expenses also included
purchases of toiletries.

In February 2024, the direct materials were reduced by 31.81% with respect to June 2023.

2. Direct Labour:

Direct labour costs decreased substantially from ₹188,700 in June 2023 to ₹111,500 in
February 2024. This decrease in labour costs in February (lean season), wages to staff is low
due to changes in staffing levels. Permanent staff wage rates were kept constant.

In February 2024, the direct labour expenses were reduced by 40.91% with respect to June
2023 as most of the temporary staff was dismissed.

3. Direct Expenses:

- In June 2023, kitchen and cooking expenses amounted to ₹118,959, while there was a
drastic fall in this number in February 2024, at a mere ₹910. The plunge in the amount of
expenses, mainly comprising of kitchen and cooking expenses naturally translates to a slump
period in the month of February.

In February 2024, the direct expenses reduced by 99.23% with respect to June 2023 as
minimal new purchases were made and leftover materials from the previous winter months
were utilised.

In February 2024, the Prime Cost was reduced by 60.39% with respect to June 2023.
4. Work Overheads:

- Work overheads in June 2023 included fuel for car and safari (₹183,811), water (₹79,200),
and electricity (₹13,000).

- In February 2024, only water (₹5,000) and electricity (₹7,000) expenses were reported,
with no expenses for fuel for car and safari.

- This indicates a decrease in work overheads between the two periods.

In February 2024, the Works Cost reduced by 76.17% with respect to June 2023.

5. Marketing Expenses:

- Online marketing expenses and commission to travel agents/marketers totaled ₹30,000

and ₹10,000, respectively, in June 2023.

- However, in February 2024, online marketing expenses decreased to ₹15,000, and no

commission expenses were reported.

- There was a decrease in marketing expenses between the two periods.

6. Cost of Sales and Operational Profit:

- The cost of sales decreased from ₹656,670 in June 2023 to ₹161,910 in February 2024.

- Despite the decrease in the cost of sales, the operational profit changed from ₹883,892 in
June 2023 to a loss of (₹122,665) in February 2024.

In February 2024, the Cost of Sales reduced by 75.34% with respect to June 2023.

- This significant shift indicates that while the cost of sales decreased, other factors such as
revenue changes or additional expenses impacted the operational profit negatively in
February 2024.

Overall, the comparative analysis highlights significant changes in various cost categories
between June 2023 and February 2024, affecting the operational profit of the hotel. The
primary factors contributing to lean periods and decreases in direct material and labor costs
can be attributed to extreme weather conditions, such as heavy snowstorms, resulting in
hazardous travel conditions. For a substitute part of February, the hotel remains closed and
the travelling risks during this snowstorm period averse anxious tourists. These conditions
consequently led to reduced bookings and operational activity. February is the most inactive
month for the hotel.

June is the peak operational month. Summer vacations and the extreme heat of the urban
regions drive people to seek refuge in the mountains. Naturally, all the expenses as well as
revenue in this month is the highest.
 Future Recommendations

1. Sustainable Practices on a Budget:

Implementing water-saving measures, such as installing low-flow fixtures and offering towel
reuse options, is a cost-effective approach to reducing water consumption and lowering utility
costs for the hotel, while contributing to environmental sustainability. Investing in
energy-efficient LED lighting and promoting energy conservation among guests are proactive
steps towards reducing electricity consumption and related utility costs. Partnering with local
businesses to source eco-friendly toiletries and bath products and supporting local suppliers
can not only reduce costs, but also contribute to growth in the community economy.

2. Unique Experiences:

Forming partnerships with local businesses to provide exclusive guest discounts or packages
not only adds value for guests but also fosters stronger connections within the community.
Furthermore, developing curated guest itineraries that showcase nearby attractions and
activities based on guest interests enhances the overall guest experience.

3. Optimising Business Operations:

Harnessing free online booking platforms and social media channels is a strategic approach to
boosting the hotel's visibility and increase customer outreach. Cross-training staff to
proficiently handle various roles not only minimises the need for additional hiring but also
optimises labour costs while maintaining operational efficiency. Furthermore, implementing
cost effective digital feedback surveys post-checkout enables the hotel to collect valuable
insights for improvement and enhance guest satisfaction.

4. Personalised Guest Experience:

By tailoring recommendations based on guest data and incorporating personalised amenities,

the hotel can significantly enhance the guest experience and foster loyalty without
necessitating substantial financial investment. Furthermore, showcasing the unique local
culture and attractions through curated experiences and partnerships adds depth to the guest
experience, distinguishing the hotel from competitors. Embracing the local flavour will create
memorable experiences for guests.

5. Community Engagement:

By partnering with local businesses and prioritising eco-friendly practices, the hotel
demonstrates corporate social responsibility while also generating positive publicity.
Additionally, hosting or participating in community events not only fosters goodwill within
the local area but also drives foot traffic to the hotel.
6. Seizing the Opportunity during the Winter Months:
During the winter months of low occupancy, the hotel can organise destination weddings
and birthday parties, to make substantial revenues in a few nights. For this, the landscaping
will be moderately reformed during February. However, this has a few drawbacks:

→ During this time, the snowfall is hazardous and sometimes knee-deep. Hence, it is very
difficult to host any event in such circumstances.

→ Very few weddings take place during these months, especially in the mountainous regions.

CONCLUSION:
The research project entailed a deep dive into the hotel business. Through this research, we
have understood the operations of such a business to a significant extent and analysed the
various cost categories. Our research was not limited to numbers. After speaking to the owner
himself, we gained insight into the qualitative aspects of such a business; the humanity of it
which makes it what it is and why people seek out such places.

We have also understood the future of these businesses and the opportunities it presents. The
Bugayal, Kanatal is doing its best to grab these opportunities and the initiatives undertaken
have also been studied and mentioned herein.

It is evident that The Bugayal is more than just a hotel. It is a plethora of services and
personalism presented to the customers and a holistic unit within itself working towards
attaining sustainability.

GALLERY