A large, downtown hotel allocated all of its restaurant labor costs on the basis of revenue dollars. This hotel had seven restaurant outlets that were vastly different, including banquet, room service, a bar, a 24-hour restaurant, and a fine dining facility. There are obvious differences in the way labor resources are consumed in these various outlets. However, the most glaring example was in the banquet operation. Since banquets were not regularly scheduled events, the banquet manager hired servers as contract laborers. These costs were not included in the restaurant labor pool. Suggest at least two steps the manager should take to ensure that all labor is factored into the profitability analysis. The textbook discusses level 1, 2 and 3 variances. Suggest the variance analysis that would pinpoint the issue with the budget.
after you write the answer of the question, write responses for these comment First Response : In simple terms on analysis of cost and revenue of the from which determines whether or not the from is profiting is known as profitability analysis. The two steps the manager should take to ensure that all labor is factored into the profitability analysis are;Net profit margin: It is sometimes simply called the profit margin. To get this number, subtract your experiences from our revenues to get your net profit and divide that by your revenue.Benchmark Industry profitability ratios: Different industries have different level of profitability real estate, healthcare, and financial services tend to have high profit margin. Other industries like autos and grocery have margins that are much lower Benchmark your industry before profitability to know what to aim.This helps management to understand why fluctuations occurs in its business and what it can do to change the situation, and the the variance analysis that would pinpoint the issue with the budget;Selling price variance: The actual selling price, minus the standard selling price, multiplied by the no of units sold.Variable overhead spending variance: Subtract the standard variable overhead cost per unit from the actual cost incurred and multiply the reminder by the total unit quantity of output.Fixed overhead spending. variance: The total amount by which fixed overhead costs exceed their total standard cost for the reporting period.Second Response : In cost accounting, profitability analysis is an analysis of the profitability of an organization’s output. The main aim of a business is to earn profits. Thus a company has to attract customers and retain the earnings. This is known as profitability analysis.The manager should consider using profitability analysis which mainly has a focuses on three criteria1. Customer profitability analysis (CPA) – Which calculates revenue coming from customers less all costs.2. Customer product profitability analysis – This equation helps calculate the profitability per product and per customer.3. Implementing Total Quality Management (TQM) – TQM increases the total quality.Profitability Analysis steps · Gross Profit Margin: Your gross profit margin is the amount of your sales revenue minus the cost of your goods. In conjunction with your other numbers, your gross profit margin can tell you if your products are profitable enough, if you need to increase sales or if your expenses, like sales costs, are too high.· Net Profit Margin: It is sometimes simply called the profit margin. To get this number, subtract your expenses from your revenues to get your net profit. Then divide that by your revenue.· Analysis by comparing with Past: By comparing your current numbers by your past performance, you’ll know if you’re moving in the right – and more profitable – direction and be able to pinpoint areas that need attention.· Benchmark Industry Profitability Ratios: Different industries have different levels of profitability. Real estate, health care, and financial services tend to have high-profit margins. Other industries, like autos, and grocery, have margins that are much lower. Benchmark your industry before looking at your profitability so you know what to aim for.· Understand Customer Valuation: Your customers are the source of your revenue – and your profits. A low valuation customer who typically later purchases high margin items is a good investment. But you need to understand which is which before you can make smart strategic decisions.