The Chicago Omni Hotel is a 750-room luxury hotel offering guests the finest facilities in downtown Chicago. The hotel is organized into four departments: lodging, dining, catering and retail stores. Each of these departments is treated as a profit center. Lodging is the largest profit center and is responsible for room rental, maids, reservations, main lobby, and bell captains. Dining operates the coffee shop, room service, and three restaurants out of a single kitchen. Catering services is separate from the dining operations. It offers banquet services to large parties, weddings, and business meetings through its own kitchen and staff separate from the dining department's kitchen. However, dining and catering coordinate purchasing and staff scheduling. Retail is responsible for leasing space off the lobby to independent store owners (gift shop, car rental agencies, airline ticket counters, jewelry, flowers, toys, liquor, etc.). There are currently 14 independent stores operating in the hotel. Profit center managers are paid a salary and a bonus. The annual bonus depends on a number of factors, including their unit's profits, customer satisfaction and employee retention. The following table present budgeted operating data for the first year:
Revenues ($millions) Lodging: $39.20 DIning: $9.80 Catering: $5.80 Retail Stores: $1.90
Total: $56.70
Separable Operating Exxpenses Lodging: $31.10 Dining: $6.20 Catering: $3.50
Retail Stores: $0.30 Total $41.10
Square footage (1,000s) Lodging 625 DIningL 50 Catering: 125 Retail Stores: 80 Total: 880
Number of employees Lodgin: 1,000 Dining: 140 Catering: 35 Retail Stores: 4
Total: 1,179
Besides the separable expenses traced directly to each profit center, the hotel incurs the following additional expenses:
Occupancy costs (interest,taxes, insurance) $5.6 million
Marketing costs $1.4 million
Administration (accounting, human resources,
security, maintenance and senior management) $$1.1 million
Total $8.1 million
Profit center performance is part of each profit center manager's annual bonus. Also, to evaluate how each department of the hotel is performing, senior management desires a statement calculating a performance measure.
Required:
b. Using your report, discuss the relative performance of each profit center, Which ones are the best and which ones are the worst?