Hospitality Financial Management (HFM) Assignment - CVP Analysis
You are assisting management consider different cost and pricing strategies. Consider the following data and report to management your findings.
1. The cocktail bar in the Le Cordon Bleu hotel currently has sales revenue of $650,000 per year. Beverage costs amount to 40% and other variable costs at this level of revenue amount to 10%. Fixed costs are $170,000pa.
You are required to show all relevant formula and calculations using a professional layout as explained during class tutorial sessions. Use Excel and use whole numbers. Percentages where shown should be displayed to one (1) decimal place ie xx.x%.
Please read the questions and information carefully.
1.1 What is the annual net profit (before tax)? (4)
1.2 The owner wants to increase the manager's salary by $12,000 per year. What is the new sales revenue needed to provide this additional salary and maintain the current level of net profit? Show the equation you used to arrive at this answer.
(Any added sales revenue will come from increasing seat turnover by improving/increasing the efficiency of customer service).
1.3 Instead of increasing sales revenue by increasing seat turnover and customer service, the owner decides to increase menu prices by 5%.
The owner believes the price increase can be made without losing any customers and without increasing the cost of sales or other variable costs. The original variable cost dollar values and the manager's salary increase still apply. Hint: this means the variable cost percentages will change.
Show the new VC%'s.
What will the bar's net profit (before tax) be?
2. The restaurant in the Le Cordon Bleu hotel currently has a cover sale price of $65 with a variable cost per unit of $21, fixed costs are $80,000 per year. The owner wants to increase the manager's salary by $12,000 per year.
2.1) Calculate the total number of covers to BE and meet the manager's salary increase.
2.2) The owner has also been advised by his supplier, the cost of raw materials is about to increase. This is expected to result in an increase in the variable cost per unit of 2.6%.
Calculate the number of covers for the increased salary and increased costs. Show the new VC per unit and CM per unit $xx.cc
2.3) How many more covers are required to meet the increased Variable Cost?
3) Using the original variable cost per unit of $21 and taking into account the required increase in the manager's salary, create a table and then use the graphical method of analysis to display:
- Units sold in 1,000 increments (from 0 to 5,000)
- Sales Revenue
- Fixed Costs
- Variable Costs
- Total Costs
From the chart show the estimated value of break-even sales dollars and units.
3. Advanced application.
You have been asked to help management make a decision about the Hotel's financial position. You have uncovered the following information:
Annual Revenue $1,800,000
Fixed Costs $1,100,000
Variable Costs $600,000
Company Tax Rate 30%
Management want to achieve a NPAT of $90,000
a. Calculate the current NPAT.
b. Calculate the NPBT to achieve the required NPAT.
c. Calculate the required sales to achieve the desired NPAT.
Note: All calculations should be done using Excel and copied into a Word document. All answers should have clear headings. Marks will be deducted for sloppy presentation.