BUS201 Accounting for Hospitality Industries to mitigate risk of COVID 19 Assessment Answer
Financial and Management
In the recent past months most of the people infected from the coronavirus infection worldwide. This virus has originate in the china (Wuhan City December 2019). As per the World Health Organization data as of 15 March 2020 more than 2 lakh people all across the world has been infected with this virus and more than 8000 people have died. This Virus has originate in December 2019 therefore it has given the name COVID-19.In this report it is going to discuss how corona virus COVID 19 has impacted the world with the shutting down of the business and bens the travel as the virus has disturb the more than 30 countries worldwide with the large number of cases in China, Italy, Iran, United States of America, Japan, Pakistan and India. HSMAI’s Sales advisory has also disclose the impact of the coronavirus on the hospitality industries.
2. COVID 19 Crises
COVID 19 is the human spread virus which means it spread human to human. This the reason it is very difficult to control as the 7.5 billion people in the world are living. Due to its high reach to the people and making them seek , World Health Organization has advised to the all the countries to lock down their country and enact the travel ban so that the people gathering can be control. This will help to reduce the cases of coronavirus. Most of the countries like America, Italy, Iran, Australia and India has implemented the WHO guidelines and has lockdown the entire country due to which a major crises has occurred to the economy worldwide which have impacted almost every business and industries as the production and people both are restricted during this COVID 19 crises. Loss of Billions $ are reporting on daily basis and people are being unemployed. Hospitality Industries has also affected majorly in the business as the people are not travelling for any purpose, they are lockdown in their home countries. This is impacting the hotel business between $ 5.9 billion to $ 7.7 billion which is large scale. If the people do not travel for any purpose then who will stay at hotel. This is causing a serious issue and nobody know until when this uncertainty will survive in the market.
3. How Management Accounting Principle help Hospitality Industries to mitigate risk of COVID 19
. If an organization has the efficient accounting system then it can provide the information with data analysis for the purpose of long term and short term decision making (Lees, 2017). Management accounting principle which can be implement by the any industries to make the wise decision with the accurate information and control the risk to create the maximize value for the shareholders even if market condition are worse. As from the COVID 19 it is uncertain and nobody know, how long the corona virus impact is going to have and when it will be end as the cure of corona has not been deducted yet. Corona virus has been impacted the most of the European countries such as Austria, Belgium, Finland, Germany, France, United Kingdom and Italy (Ylä-Kujala, et al. 2017).
|Budgeting||Management accounting help to collect the data to prepare the budget from the past trend and also analysis with current scenario. This lead to manage the cash flow, achieving the objective, plan the future outcome and motivating the employee to face the problem with the decision making capability. During the crises like COVID 19 organization must prepare its Flexible budget as per the current need and allocate the resource accordingly so that cost saving can be initiated.|
|Cost volume Profit analysis||In the crises Hoteliers should observe the all the location of their hotel worldwide and consider the impact of crises and lock down of cities, for cost volume profit analysis, of the particular project or hotel. Management accounting help in getting the data of the particular hotel with location concerning to the cost. Which can be align with the production demand to generate the profit.|
|Break even analysis||Break even analysis help the organization to calculate the minimum number of the product to sale so that the fixed cost and variable cost of the organization can be achieve. In this case there will zero profit.|
|Special order Pricing||During the Cries which has uncertainty like COVID 19 hotelier should reform its pricing to attract the consumer. Cities with the high impact of crises like America, Italy, Iran there should be lower room price as the traveler rate will be low at this place. Through the management accounting principle a consolidated cost data report can be provided to calculate the special order pricing.|
|Relevant cost||Relevant cost means those cost which cannot be avoid once the business commence. With help of Controllable and uncontrollable principle of management accounting, hotelier can identify the avoidable and unavoidable cost. Avoidable cost are the relevant cost which should be analyses to minimize the cost during the crises.|
|Department Overhead cost||During the Coronavirus pandemic, many of the department in the hotel may be discontinue, to allocate the cost and determine the overhead absorption method management accounting principle “Absorption of overhead cost” help. This lead to allocation of cost to department on accurate basis.|
In such Scenario following are the management accounting principle to be follow:-
Management by exception, this principle help the management to provide the information of predetermined budget to compare with actual performance. In the COVID 19 impact hotel industries can figure out the how the actual performance is lower than the expectation and summarized all the exception at one report to deal with (Napitupulu, 2018).
Designing and compiling, it means hotel industries must establish their accounting system in such ways so that all the relevant accounting data can be provide in timely manner and management can take the decision wisely. This will help the cost benefit analysis that how the cost has been increase during the crises and how can it be faces to generate the benefit (Gomez-Conde, Lunkes, & Rosa, 2019).
Control at sources accounting, hotel industries has the large cost scale as their building cost, employee cost, antic item to decorate the hotel and martial issuing cost, repair and maintenance and vehicle cost (Adler, 2018). Controlling system will provide the cost saving during the uncertain COVID 19 crises as the hotel industries will not be able to generate the revenue in lock down period.
Forward looking approach, with this principle hotel industry can keep them self-ready for the future crises which make them suffer losses. But in the given scenario COVID 19 has uncertain duration to vanished out from the world there it can help extent to some limit to reduce the losses and can make the organization ready to face the crises (Bebbington, et al. 2019).
Utilization of resources, this principle explain that an organization must use its resource to the fully and make sure the maximum benefit driven from the resource. For instance fixed cost of the hotel building will not be realizable at the time of crises as the business is not running worldwide therefore this building resources should be given on rent to government for the take care of the patient of corona virus. This will help to generate the revenue or achieving the break even.
Controllable and Uncontrollable cost, to take the advantages of the opportunity hotel industry must following this principle to identify the relevant cost. Because putting the effort to control the uncontrollable cost is west of time therefore organization should focus on their controllable cost. In the crises like corona virus hotel industry should reduce its material cost, luxurious service cost etc. they are the relevant cost which can be avoid at the time of crises when customer are at very lower number (Camarretta, et al. 2018).
Absorption of overhead costs, in the hotel industries there so many department in the hotel which have their own overhead cost. This overhead cost should be allocate or absorbed with the predetermined method so that overhead cost should not be over absorbed to any department. This will help to rank the department on the basis of cost saving at the time of COVID 19 pandemic Crises facing scenario (Corona, Nan, & Zhang, 2019).
4. Benchmarking the Management Accounting Principle across other international hotel group
While facing the lower occupancy rate as the downtime of the travel has occurred due to the COVID 19 all across the world the hotel owner should not loss hope or do any act like reducing room pricing to attract the consumer to stay. Rather they should have positive attitude and try make an understanding that extent to what COVID 19 will impact the group of the company. They should evaluate the current position analysis the maximum outcome at worse scenario then try to make a better plan to deal with the situation. There has been increase of Chinese traveler at large scale in last two decades and corona virus has impacted the proportion of traveler, but the hospitality industry with their strategies decision can survive in long term.
It is considered that head office should navigate the pandemic cries all across the world to the hotel group so that optimum responses can be given to deal with it. Management accounting help the hotelier to calculate the minimum number of room that should be on sale to cover the cost so that hotel can survive and cost of all the like building, bar, restaurant and cost center can be achieve. Although this will not generate the profit but help the organization to survive during the crises for long term. By using the cost volume analysis, it will helps in deciding which hotel in the group should be on operational mode and which one should be discontinue temporary purpose to avoid the loss through the proper management accounting. However, organization should focus on their controllable cost reduce the overall production costing of the business.
As from the above analysis report it can be concluded that corona virus outbreak has become the serious issue for the health and economic of the world. This has impacted every business sector at large scale adversely. Hospitality industry has to develop them self as per the current COVID 19 pandemic to fight with unity. They can use the management accounting principle as mention above to reduce the impact on the business and survive for long term. Hotel industry has to develop the program for all the group hotel around the world to survive in such kind of situation. Hotelier should adjust their price accordingly and monitor the pricing trends in other hotel of the group.