cost control hotel

HOTEL COST CONTROL

Fakultas Ekonomi – Universitas Sahid Hotel Cost Control

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SESSION 2

EXPLOTATION COSTS IN A HOTEL:

1. ROOM EXPENSESRoom expenses are a jargon for the costs of the dorm room

(and the meal plan). Every hotel charges its own rates, and

there can be quite a difference from hotel to hotel, both in

terms of the housing and meal options, and in terms of the

cost. Some hotels have brand new, apartment-style

dormitories with spacious kitchens, wireless internet ports and

private bathroom facilities, while other hotels offer only

traditional dormitory-style living in a room, and one bathroom

for all of the residents on each floor.


2. FOOD & BEVERAGES COSTS

FOOD COSTS: Are costs associates with actually producing the menu items a guest select. They include the expense of meats,dairy, fruits, vegetables, and other categories of food itemsproduced by the foodservice operation.

BEVERAGE COSTS: Are those related to the sale of alcoholic beverages. It is interesting to note that it is common practice in the hospitality industry to consider beverages cost of a nonalcoholic nature as an expense in the food cost category. Milk, Tea, coffee, waters, carbonated beverages and other nonalcoholic beverage items are not generally considered a beverage cost. Alcoholic beverages accounted for beverage costs include beer, wine and liquor.

EXPLOTATION COSTS IN A HOTEL:


3. ADMINISTRATIVE & GENERALSThe costs to keep a company run. General and administrative costs are indirect costs and exclude the costs incurred from factory processes central to the creation of a product. Reported on the income statement, it is the sum of all direct and indirect selling expenses and all general and administrative expenses of a company. Direct selling expenses are expenses that can be directly linked to the sale of a specific unit such as credit, warranty and advertising expenses. Indirect selling expenses are expenses which cannot be directly linked to the sale of a specific unit, but which are proportionally allocated to all units sold during a certain period, such as telephone, interest and postal charges. General and administrative expenses include salaries of non-sales personnel (GM, Comptroller, Resident Manager, rent (vehicles), heat and lights (POMEC?).


4. OCCUPATION COSTS

Occupation cost: Are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. This related to occupying a space including; rent, taxes, personal property taxes, insurance on building and contents, depreciation and amortization expenses (Fixed Costs).

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http://en.wikipedia.org/wiki/Whole_life_cost

http://en.wikipedia.org/wiki/Occupancy

http://en.wikipedia.org/wiki/Disposal

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MATERIAL COST CONTROL(MCC)

MaterialsMaterials

Materials

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MCC Is the process whereby management attempts to regulate costs and guard

against excessive costs.

As a management tool to control or to monitor costs which are occurred in

Room operations

HOTEL


1. Hotel products

MATERIAL COST CONTROL

2. Products or services created or produced using costs and expenses.

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3. Hotel Cost & Expenses 3.1. Rooms Department: Sales and Wages Employee Benefits China, Glassware and Linen Commissions Contract Cleaning Laundry and Dry Cleaning Operating Supplies Guest Supplies Printing and Stationery Other Operating Expenses Reservation Expenses Uniforms



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3. Hotel Cost & Expenses 3.2. Food and Beverage Department: Cost of Sales

Expenses: Salaries and Wages Employee Benefits China and Glassware Silverware Linen Contract Cleaning Kitchen Fuel Laundry and Dry Cleaning Licenses Music and Entertainment

Expenses (continue): Operating Supplies Cleaning Supplies Guest Supplies Paper Supplies Printing and Stationery Other Operating Expenses Uniforms



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3. Hotel Cost & Expenses 3.3. Guest Laundry: Cost of Laundering

Expenses: Salaries and Wages Employee Benefits Laundry Supplies Operating Supplies Other Operating Expenses Uniforms



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3. Hotel Cost & Expenses 3.5. Other Operated Department: Cost of Merchandise sold

Expenses: Salaries and Wages Employee Benefits

Other Expenses: China and Glassware Contract Services Laundry Linen Operating Supplies

Expenses (continue): Other Operating Expenses Uniforms



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3. Hotel Cost & Expenses 3.6. POMEC Department: Salaries and Wages Employee Benefits

Property Operation & Maint: Building Curtain and Draperies Electrical and Mechanical Equip Elevators Engineering Supplies Floor Covering Furniture Ground and Landscaping Operating Supplies

POM Expenses (continue): Operating Supplies Painting and Decorating Refrigeration Supplies Removal of Waste matter Uniforms Miscellaneous

Energy Costs: Electric Current Fuel Steam Water



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3. Hotel Cost & Expenses 3.6. POMEC Department: Salaries and Wages Employee Benefits

Property Operation & Main: Building Curtain and Draperies Electrical &Mechanical Equip Elevators Engineering Supplies Floor Covering Furniture Ground and Landscaping Operating Supplies

POM Expenses (continue): Operating Supplies Painting and Decorating Refrigeration Supplies Removal of Waste matter Uniforms Miscellaneous

Energy Costs: Electric Current Fuel Steam Water



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3. Hotel Cost & Expenses 3.7. Marketing Department: Sales: Salaries and Wages Employee Benefits Operating Supplies Other Operating Expenses Postage and Facsimile Trade Shows Travel and Entertainment

Advertising: Salaries and Wages Employee Benefits Exchange

Advertising (continue): Other Operating Expenses Outdoor Print:

- Magazines – group & travel - Magazines – other - Newspapers

Production Radio and Television



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3. Hotel Cost & Expenses 3.7. Marketing Department (continue): Merchandising: Salaries and Wages Employee Benefits In-house Graphics Other Selling aids Point of Sales materials

Public Relation and Publicity: Civic and Community projects Fees for outside services Other Operating Expenses Photography

Research: Salaries and Wages Employee Benefits Guest History Other Operating Expenses Outside services



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3. Hotel Cost & Expenses 3.7. Marketing Department (continue): Fee and Commissions: Advertising Agencies Franchise Fees Hotel Representatives Marketing Fees Other Operating Expenses

Other Selling and Promotion Expenses: Association dues Complementary guests Credit Cards cost - internal Direct mail



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3. Hotel Cost & Expenses 3.8. Administrative and General Expenses: Salaries and Wages Employee Benefits

Other Expenses: Cash overages and Shortages Commission on Credit Card charges - net Credit and collection charges Data processing expenses Donations Executive Office expenses Insurance – general Internal Audits expenses



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3. Hotel Cost & Expenses 3.8. Administrative and General Expenses (continue):

Other Expenses (continue-1): Internal Communication systems Loss and Damage Management Fees Miscellaneous Postage and Facsimile Printing and Stationery Professional Fees Provision for Doubtful Accounts Trade Association dues Trade Publications



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3. Hotel Cost & Expenses 3.8. Administrative and General Expenses (continue):

Other Expenses (continue-2): Traveling Expenses Trustees’ and Registrations’ Fees Uniforms


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Why Costs and Expenses to be controlled?Why they should attempts to regulate properly?

BUSINESS PRINCIPLE = ECONOMIC REASONS

To maximize revenues as well as profit To minimize Cost and Expenses

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Increasing or excessive cost may caused ofCaused of

Un proper Quality

Un proper Quantity

Un proper Storage

Not match Price

Un proper process

Overview of the Purchasing and Ordering Process in FB Department

Purchasing

Receiving

Storing

Issuing

Processing

Selling


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Increasing or excessive cost may caused ofCaused of

Un proper Quality

Purchasing & Receiving

Un proper Quantity

Purchasing & Receiving

Un proper Storage

Not match Price

Price setting ; Selling

Un proper process

Chapter’s Objective:

After having this chapter all students could identify the role

of Material Coat Control in a hotel and able to distinguish

3 prime costs which appear in Rooms Operation.


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Cost control is the process whereby managers attempts to

regulate costs and guard against excessive costs.

‘Cost control’ adalah kegiatan/proses yang dilakukan pimpinan (supervisors, Deparment Heads, Managers, General Manager) untuk mengendalikan dan menjaga peningkatan biaya.

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Every managers must take care this matters.

Rooms Manager is the only person who responsible to control

cost occurred of his/her department.

Rooms Manager should perform and well planned regarding

Room Material Cost Control activities.

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The primary objectives is to provide of useful informative

operational data as quickly as possible to the management,

so that the corrective action can be taken in time.

Topic 1 – Introduction to Purchasing and Controls

The Importance of Control Systems in Purchasing

The purchasing process, even in small establishments, is not just a

matter of going to the market or ringing a supplier when food,

beverage and other stock items need to be replenished. In fact, the

process involves systems and documents that control how purchasing

is conducted.

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‘Controls’ are needed because the costs associated with purchases

run at about 30% of turnover (turnover is the total amount of the

money that comes into the establishment).

For example, if a restaurant has a yearly turnover of $300,000,

$100,000 of this is used to purchase stock items that go to create the

products and services supplied to customers.



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It would be tempting to think that losing a few thousand

dollars through wastage, breakage or theft of stock would

hardly matter if the total expenditure on stock were $100,000.

However, let us examine this a bit further.



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It turns out that the other major costs in Hospitality businesses are those to do with labor (staff wages) and overheads (rates, water, electricity etc.). Of the total amount of money coming into the establishment about 66% is spent on these items. Along with purchases this leaves only about 4% of the income as profit. For a $300,000 turnover this is $12,000.



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Now consider the theft or breakage of a $50 bottle of Scotch. Once gone it has to be re-purchased. Since there will probably be no reason to expect an increase in sales to cover the cost, where will the money come from? Well, you could reduce staff wages (probably not an option); or you could not pay all your rent (you still have to pay it eventually). This means the $50 has to be paid for out of profit. There is nowhere else it can come from!



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So if over the year re-purchases of stock amounted to $12,000, all the profit potentially available to this establishment would be lost.

To consider this a different way, we could say a total expenditure on stock of $112,000 (normal expenditure and re-purchases) means that re-purchase costs will be about 10.5% of total purchases, ($12,000 / $112,000 x 100). That is, if stock losses amount to about 10.5% of the profit of any normal hospitality establishment running at 4% profit, profit will be completely wiped out.



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Any ‘controls’ that can reduce or minimize stock losses will have a direct $ for $ impact on profit.

In this subject we will look in detail at the purchasing process, the ‘controls’ that are used and the way these controls help ensure stock losses are minimized.



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Purchase-CN Purchase-Debit Note


Test Yourself 1

If you owned a hospitality establishment what % loss of stock do you think would be acceptable to you? Explain.---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Key points

Ensuring stock is not lost through wastage or theft is an essential component in maximizing the profitability of a hospitality establishment. To do this, control systems are implemented that track the entire process from departmental usage through to departments receiving replenished supplies.



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The purchasing process is made up of many different activities involving people, systems and documents. Purchasing is carried out so that food, beverage and other stock items needed for day to day running of various departments can be replenished. The complexity of the systems set up by each establishment will differ according to the style and the size of business. However there are some basic systems that should appear in hospitality businesses of all sizes and these involve systems for purchasing, receiving, storing and issuing of stock.


Overview of the Purchasing and Ordering Process

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The diagram below is an example of what a purchasing system might look like in an establishment that has strict rules set up with regard to how the purchasing process is to be carried out. The diagram works like a flow chart and shows the movement of information between hotel departments and major parts of the purchasing department. Note the use of specific documents in each part of the process.



Figure 1 Overview of activities and information flow between a hotel department and the Stores and Purchasing Department


This diagram shows that each department must complete paperwork that filters through to the next department, creating a record of: What was done By whom it was done For what purpose.

This regulates the functions of purchasing, receiving, storage and issue of stock.



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Some businesses do not use systems that are as formal as that shown in the diagram; however there will always be some type of system that should be followed where stock is involved.



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PURCHASING

RECEI VING

STORING

ISSUING

PROCESSING

SELLING

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BAGAN ALUR PEMBELIAN PERSEDIAAN

STORE PURCHASING ACCT DEP HEAD GM COST CONTROL SUPPLIERS

PRPR PR

QAPQAP

PO

PO

PO

PO

Copy forRECEIVING

Notes:PR = Purchase RequisitionQAP = Quotation Analysis PricePO = Purchase OrderA = Arsip

Approval Approval

In the hospitality business, the generic name given to systems such as those shown in the diagram is ‘Controls’. The controls that are used in each establishment help to: Obtain food, beverage and other stock items from suppliers Maintain the stock while it is in storage Reduce the likelihood of theft and wastageAssist in the distribution of stock to departments who

request it as needs arise.



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Key points

Controls systems associated with purchasing and storage use documents such as:

• Requisition Forms• Purchase Requisitions• Purchase Orders



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The diagram below shows the interactions between

departments and the purchasing and stores department.


The Role of Purchasing and Stores Department

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control

As you can see in the diagram above when a department needs stock, it completes a requisition document and forwards it to the purchasing and stores department. In turn departments receive the items (goods) requested on the requisition. All departments rely on the purchasing and stores department to obtain stock items.

Topic 1 – Introduction to Purchasing and Control


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Each department will require different stock items to help them perform their daily activities. The stock items would range from paper products, guest supply items such as shampoo and shoeshine, major pieces of equipment, to food and beverages. However, departments can’t spend unlimited amounts of money on supplies (stock). Each department is allocated a budget (a certain amount of money) and must ensure they spend no more.



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This means the purchasing and stores department must maintain a system of purchasing that enables the correct quantity and quality of stock to be purchased at the right time and price; so they can support departments to ‘keep within budget’.



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To ensure the system works properly, the purchasing and stores department must ensure that when each department puts in a request for more stock, the correct paperwork is completed. Other roles of the purchasing department include:

o checking authority of those ordering stocko controlling the flow of informationo costing stock ‘back’ to the various departments.



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Everyone involved in purchasing and ordering must adhere to management policies and ensure the system is followed. Failure to follow the purchasing system may lead to problems in stock levels and stock maintenance records.



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A large international-style hotel is typically divided into various departments. The departments you would expect to find are: Food & Beverage, Front Office, Housekeeping, Engineering, Sales & Marketing, and Administration. Each department has places in which it stores stock for immediate use. In the bar this is in the refrigerator and on shelves. In the kitchen this is in refrigerators, the cool room and on shelves. Each department is responsible for maintaining stock levels in these local storage areas, and placing orders for new stock as the need arises.


Hotel departmental interaction with the purchasing and stores department

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Senior management dictates to each department:

What is allowed as stock The amount of stock that is allowed to be on-hand

(available), at any given time How replenishment of stock should be handled.



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As each department uses stock items, it keeps a record of

usage; so that when stock levels get down to a pre-determined

amount, a process to re-order the required stock is carried out.



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To ensure these procedures are followed, each department has particular people who are responsible for:

• Recording usage• Writing out requisitions• Taking delivery of stock items from the store.



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This process is part of each department’s individual stock

control process and interacts with the overall purchasing and

control process of the establishment.



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For example, if you were employed as a bar attendant in a large international hotel, at the end of each shift you may be required to count the number of empty (and broken) bottles or cans of beer, wine, spirit etc. You may also be required to count or measure the stocks remaining in the bar. At the same time the bar manager may obtain a print out from the computerized point of sale system or the cash register.



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From this, he/she would then note the number of cans or

bottles sold, and calculate the volume of each type of liquor or

post mix that had been used by looking at the sales of drinks

and cocktails.



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At the end of Shift

To count empty bottle/cans

Beers, wine spirits, etc.

To count stock remaining

Bottle, cans, rest of Spirit

Computer print out

Sold?

For example, if you were employed as a bar attendant in a large international hotel, at the end of each shift you may be required to

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Test Yourself 2

Counts of bottles and cans, and taking note of how much liquor and post mix is left will enable the bar manager to determine how much needs to be re-ordered before the next shift. Why do you think the bar manager would also check the records of sales to determine the amount used? Explain.------------------------------------------------------------------------------------------------------------------------------------------------------



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Another example of recording usage would be if you worked in the Housekeeping Department of the hotel. As a room attendant one of your duties would be the cleaning of guest rooms after guests have checked-out. To carry out this duty you would use chemicals to clean all of the surfaces; you would replace all dirty linen and towels with clean ones; you might check the mini-bar usage; and you would definitely replace the guest supply items such as shampoo, conditioner, bath gel, shower cap and shoe shine.






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cost control hotel

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