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Cool Destinations Ltd owns a chain of backpacker lodges located throughout Australia. The

company's profits have declined over the past year. In an attempt to isolate the causes of poor performance, the company has recently introduced a costing system to estimate the cost of its major services at each lodge. The company intends to use this information to review the service pricing structure and assess the profitability of its various service lines at each lodge.


Snowy Mountains Lodge is one of the busiest lodges in the Cool Destination chain. One of its main products is the provision of accommodation, which involves three main processes: reception, room maintenance and the collection of payments for accommodation. The lodge charges backpackers $40 per day for single bedrooms (double rooms are not available).


Another major product is the provision of evening meals, which involves a variety of ingredients and two major processes: kitchen service (cooking and clean-up) and table service. The price of the evening meals varies between $5 and $15, depending on the menu items selected.


A third product is the provision of a range of one-day and half-day tours. The lodge hires guides and provides equipment and transportation for a range of activities such as whitewater rafting, canyoning, canoeing and mountain trekking. Picnic lunches, purchased from the local bakery, are also provided for full-day tours. Tour prices vary considerably, depending on the activities included.


In the past year, the Snowy Mountains Lodge provided accommodation to 2 400 backpackers, who stayed an average of 5 nights each, purchased 8 000 evening meals, 300 one-day tours and 400 half-day tours. The following data relate to the Snowy Mountains Lodge for the past year.





Room maintenance

Collection of accommodation


Staff salaries

$50 000

$105 000

$60 000

Equipment depreciation and insurance

6 000

155 000

4 000


3 000

5 000

2 500


4 000


2 000

Building Lease*

1 200

30 000




4 800



3 000

35 000

2 000

*Allocated per square metre


Evening Meals


Kitchen Service

Restaurant / table service

Staff salaries

$50 000

$30 000

Equipment depreciation and insurance

20 000

25 000


15 000

4 000


1 100


Building Lease*

1 900

4 100

*Allocated per square metre




Tour guides

$200 per day

Equipment depreciation

$20 000 per annum

Tour van depreciation

$5 000 per annum

Fuel and van maintenance

$10 000 per annum

Public liability insurance

$15 000 per annum

Picnic lunches

$12 per person per day

Other expenses

$6 000 per annum


1.      Use process costing (show all workings) to estimate:

a.      The cost per person of the accommodation process.

b.      The cost per day of the room maintenance process. Occupied rooms are maintained (i.e. vacuumed and dusted) each day.

c.      The cost per accommodation payment processed.

d.      The total cost per person per day of accommodation, on average, assuming a five-day stay.

2.      Assess the profitability of the accommodation service, per person per day and in total.

3.      Assume that the same kitchen and restaurant processes are used for each customer. Use a hybrid costing approach to estimate the cost of the following evening meals:



Cost of ingredients



Spaghetti bolognese


Vegetarian burgers


Fish fillets



4.      Given the information about the costs of the kitchen and restaurant processes, do you believe that the evening meal service is profitable? Explain your answer.

5.      Describe the approach that you would take to estimate the cost of each tour.

6.      Given the information about the costs of the tours, do you believe that the tour service is profitable? Explain your answer.

7.      In light of recent innovations within the hospitality industry what recommendations would you make to the management of the Snowy Mountains Lodge to improve the profitability of its business? Link these recommendations to the quantitative analysis performed.

8.      How might management of Cool Destinations Ltd use this information - what strategic considerations may be reviewed.

Task Details: Groups are to analyse the information provided, make appropriate calculations, develop recommendations and draw conclusions from their analysis. Submissions are to be in the form of a professional business report and include a title page, executive summary, table of contents, introduction, body, conclusion and reference list.

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