Solutions – Accounting Essentials for Hospitality Managers (3rd edition) CHAPTER 1 Introduction Problem 1.1: Solution a) Functional interdependency exists when the performance of one functional area is affected by the performance of a separate functional area. For example, in a hotel complex that is dominated by a casino, the success of the rooms and food and beverage departments will be affected by the success of the casino operations in attracting clients to the complex. b) Functional interdependency is an important issue for the designers of a hotel’s system of accountability because care should be taken to hold a manager accountable for only those aspects of the hotel’s performance that he or she can influence. For example, the heads of rooms and food and beverage departments should not be held accountable for a decrease in their room sales if it is caused by reduced casino activity. Problem 1.2: Solution a) The four main dimensions of sales volatility in the hotel industry are: 1. economic cycle induced sales volatility, 2. seasonal sales volatility, 3. weekly sales volatility, 4. intra-day sales volatility. b) The implications that these dimensions of sales volatility carry for hotel accounting systems are as follows: 1. Economic cycle induced volatility: Hotel sales’ high susceptibility to general economic conditions highlights the importance of hotels carefully forecasting economic cycles as part of the annual budgeting process. 2. Seasonal sales volatility: Three accounting implications arise: • Seasonal sales volatility can be so severe to warrant temporary closure for some resort properties. This possibility of having to make a closure decision signifies that cost and revenue data should be recorded in a manner that will enable a well informed financial analysis of the pros and cons of closing. • Seasonal sales volatility can also pose particular cash management issues. During the middle and tail-end of the busy seasons, surplus cash balances are likely to result, while in the off-season and the build up to the busy season, deficit cash balances are likely to result. Careful cash budgeting will therefore need to be conducted.