Case Study
BIZ201 Assessment 4 Brief 20191008 Page 1 of 19 ASSESSMENT BRIEF Subject Code and Title BIZ201 Accounting for Decision Making Assessment Case Study Part B Individual/Group Group (2-3 students) Length 2,000 words Learning Outcomes a) Explain and evaluate the role and importance of financial information in business decision making b) Apply relevant accounting concepts to simple business scenarios d) Apply basic costing and budgeting techniques to business decision making e) Apply capital budgeting techniques to capital investment scenarios Submission By 11:55 pm AEST/AEDT Thursday of Module 6 (Week 12) Weighting 40% Total Marks 100 Context: This assessment is aimed at consolidating knowledge from Modules 1-6. By prescribing this assessment, you are able to reflect on your understanding of the importance financial information in business decision making and be able to apply costing and capital budgeting techniques to business scenarios like given in this case study. Instructions: 1. Submit two files; Excel Workbook and the Business Report. This Excel Workbook is available on Blackboard under assessment section. Download it, perform calculations on it and submit it. 2. Include a reference list to any textbooks, websites or other resources used to prepare the answers including references to suppliers that the costing was based on. 3. For every task, show all workings through appropriate Excel formulas. Copy pasted numbers without appropriate Excel formulas will not be accepted. 4. Unless otherwise instructed, round your numerical answers to two decimal places. 5. Submit your assessment files using the following naming convention: First Name_Last Name_BIZ201_Case_Study B_ Assessment4_Workbook.xlsx First Name_Last Name_BIZ201_ Case_ Study B_ Assessment4_Report.doc BIZ201 Assessment 4 Brief 20191008 Page 2 of 19 Crystal Hotel Pty Ltd introduced in Part A of the Case Study has a quite flat organisational structure as per the chart below. The General Manager oversees each departmental manager directly. You have been offered an internship opportunity as a group to show your skills and how you could be of benefit to the organisation. At the end of the internship, there may be an employment opportunity for the members of the group. You need to choose as a group whether you would like to take on your internship in the Sales and Marketing Department or Functions and Events Department. Based on your choice, complete the section of the assessment related to the department you have selected. Crystal Hotel Case Study General Manager Executive Manager Rooms Division Human Resources Accounting Sales and Marketing Functions and Events Food &Beverage BIZ201 Assessment 4 Brief 20191008 Page 3 of 19 As per information provided in part A of the case study, the owners of the Crystal Hotel are planning to renovate and refurbish the hotel. A part of the redevelopment plan is to build a Wellness Centre on the rooftop of the hotel. The Sales and Marketing Manager volunteered to help with this project. He is a strong believer that it would bring the hotel up to the next level and that it would attract additional customers to the hotel. Due to the location of the hotel being within proximity to the business district of Parramatta, he believes that the Wellness Centre should be opened to external clients as well. He suggests employing a full time, in-house trainer and a part-time dietician. He believes selling monthly membership including training sessions and dietary advice will attract additional clients who may then promote the hotel to their employers for accommodation and other business-related services. The marketing manager wants to be well prepared to support the Wellness Centre project and needs help with few tasks from your team. TASK 1 As part of the Wellness Centre Project, the plan is to build a small gym on the rooftop of the hotel. You have been appointed to help the Sales and Marketing manager to make decision whether to rent or buy specific equipment items. The required items are included in Appendix 1 together with costing information. The budget for the required equipment is $55,000 for the life of the equipment. Regarding the buying of the equipment, the useful life is predicted to be 3 years after which replacement is needed. At the end of its useful life, it is expected to be sold for the residual value of 20% of its original cost. A servicing contract will be drawn up with a company to take care of the equipment. Servicing will add 3% to the cost each equipment. This is to be paid separately as one lump sum at the beginning of the term and will last 3 years. For the renting option, choose the one that is the most beneficial for the business. The rent is expected to rise by 10% each year. The rent is paid at the beginning of each period. Servicing of the equipment is included in the rent. REQUIRED The manager would like to know whether it would be better for the Hotel to buy the required equipment or to rent it. Explore both options and make a recommendation. Take into account the time value of money at the discount rate of 8%. Include advantages and disadvantages of each option and justify your choice. Option 1 - Sales and Marketing Department Assessment BIZ201 Assessment 4 Brief 20191008 Page 4 of 19 TASK 2 The Sales and Marketing Manager has an idea of creating monthly memberships for external visitors that he would like to explore further. He is thinking to create two types of membership options. A Basic Membership which would include access to the gym, sauna and pool and it would cost clients $40 a week. A Full Package Membership would additionally to the access include a one-hour weekly session with the in-house personal trainer and a dietician consultation once a month. Clients would pay $81 per week for this type of membership. He believes that an initial investment into promoting the centre would be $53,373 and subsequent cost of continuous promotion would be $1000 per month. Based on his calculations he believes offering the membership to the external clients would generate total revenue of $151,000 in the first year increasing by 10% every year after that. The in-house trainer is expected to cost the hotel $6000 per month and the services of dietician additional $2000 per month and both are expected to increase by 4% each year. REQUIRED Calculate the net present value of the external membership project over the next 3 years period. Use yearly basis for your calculations. The estimated cost of capital for the hotel is 8%. Assume 30% company tax in Australia when determining the values of the after-tax net cash flow for each year. Based on your analysis would you recommend accepting the project and offer the membership to the external clients? Explain the basis for your recommendation. TASK 3 Once the Crystal Hotel Wellness Centre is ready for opening, it will need to be promoted to existing and potential new clients. There is already an opening event (luncheon) planned which is handled by the Functions and Events Department. The overall budget for promoting the opening of the centre is $35,000 (inclusive of GST). The opening luncheon is budgeted to cost $23,000 Your team has been appointed to plan additional promotional activities for the remaining $12,000 (inclusive of GST). The budget is aimed for the promotion of the opening of the centre only. Continuous promotional activities as well as online advertising will be handled separately. The marketing team has done initial research and the promotional activities to be considered are listed in the Appendix 3. Negotiated pricing has been included as well. BIZ201 Assessment 4 Brief 20191008 Page 5 of 19 REQUIRED Choose suitable promotional activities from the list provided to you and create a promotional budget for the Crystal Hotel Wellness Centre opening. Justify your choice of activities. TASK 4 The GM has suggested Crystal Hotel to run a promotion to boost the occupancy rates of the hotel. They aim to charge $130 per person for one night’s accommodation including buffet breakfast. The variable cost per person is $40 that includes food, cleaning and utilities. Fixed costs are $35,000 per year that include council rates rate, water rates and land taxes. There are 100 rooms in the hotel and the hotel operates all year round. In general, without any promotions, the normal occupancy rates are 70% throughout the year. REQUIRED They have asked for your expertise to carry out a CVP analysis for this promotion. Calculate the following: 1. The contribution margin per service (a unit of service is one night’s accommodation for one guest). 2. The contribution margin ratio. 3. The annual break-even point in number of services and in dollars of service revenue. 4. The number of services required to earn a target net profit of $150,000 for the year (ignore income taxes). 5. Analysis the importance of CVP analysis and comment on effectiveness of this promotion based on your calculations. 6. Some of the marketing team suggest that the room charge for the promotion should be raised to $150. Comment on whether this should be done and what effect it will have on reaching the target profit. BIZ201 Assessment 4 Brief 20191008 Page 6 of 19 TASK 1 As part of the refurbishment project, the Crystal Hotel would like to introduce fresh plants into the lobby area, function and conference rooms. The management has however, dilemma on whether to hire a professional company that will deliver the plants and maintain them or whether to purchase the plants themselves and hire a gardener for the maintenance of the plants. It is estimated that the plants would need to be replaced every three years. From experience, contracting a gardener to take care of the plants would cost the hotel $230 per week. For simplification, purposes assume the gardener’s invoice is paid at the end of each year. The list of the required plants together with costing is included in the Appendix 2 of this document. The hiring contract requires payment at the beginning of the year for the full year