{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Week 9 ACCY 111 RJD Lecture 5

Fixed general and administration costs 140 total

Info iconThis preview shows pages 16–25. Sign up to view the full content.

View Full Document Right Arrow Icon
Fixed general and administration costs 14.0 13.0 5.0 32.0 Total fixed costs 94.0 68.0 45.0 .0 .0 207.0 Profit / (Loss) 101.0 55.0 .0 .0 .0 156.0 $ 000
Background image of page 16

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Accepting/Rejecting Special Contracts If a company has spare capacity to produce goods or services at what point should it utilise that capacity to sell products or services at lower price if that still contributes to its fixed costs? In markets with significant over supply ‘last minute’ deals are frequently available.
Background image of page 17
Accepting/Rejecting Special Contracts The Hotel International has 200 rooms, for which it charges $150 a night, but historically is only managing an 80% occupancy rate. The hotel’s monthly costs are summarised as follows: Fixed overheads (rates, insurance, lease, etc) $150,000 per month. Monthly operating costs fixed in short term (management salaries, other staff costs, general area power costs, etc) $200,000 per month. Variable operating costs (laundry, room power, water rates, etc.) $50 per room per night.
Background image of page 18

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Accepting/Rejecting Special Contracts Last month’s operating statement shows the following: $ Revenue (30 * 200 * $150) * 80% = 720,000 Monthly operating costs 200,000 Variable room costs (200 * 80%) * 30 * $50 240,000 Monthly fixed overheads 150,000 590,000 Operating Profit $ 130,000
Background image of page 19
Accepting/Rejecting Special Contracts The Hotel International has an opportunity to place as many rooms as it wishes on Grab a Room – an internet site offering last minute deals on hotel accommodation that normally discounts room prices by 60%. Should the hotel offer its rooms at $60 ?
Background image of page 20

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Accepting/Rejecting Special Contracts Revenue from Grab a Room (200 * 20%) * 30 * $60 = $ 72,000 Costs of rooms (200 * 20%) * 30 * $50 = $ 60,000 Net gain from late bookings $ 12,000
Background image of page 21
Accepting/Rejecting Special Contracts Is there another customer who would pay more for spare capacity rather than ‘selling it off’ cheaply? Potential loss of customer goodwill as a result of selling the same product at different prices/ It may be better to reduce total capacity and thereby reduce fixed costs, if inability to sell full production capacity is an ongoing problem. Accessing overseas markets may be a means of selling product / excess capacity at a different pricing structure.
Background image of page 22

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
The most efficient use of scarce resources If the availability of one or more resources is limited, an organisation will be unable to accept every opportunity that yields a positive contribution. Limited resources might include raw materials, the capacity of manufacturing plant (machine time), space, or specialist staff – in both the manufacturing and service sectors. First, identify the key limiting factor
Background image of page 23
The most efficient use of scarce resources The challenge is then to establish the optimum output within the constraints to maximise contribution, and thus profits. Which products or services should be produced and how
Background image of page 24

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 25
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page16 / 40

Fixed general and administration costs 140 Total fixed...

This preview shows document pages 16 - 25. Sign up to view the full document.

View Full Document Right Arrow Icon bookmark
Ask a homework question - tutors are online