Individual Case Analysis(35%)

Management accounting measures analyzes and reports financial and nonfinancial information to internal managers. The goal is to use past performance to predict the future. The internal reports should plainly inform managers of the financial results of actual operations. The reports should also show how activities can be changed to affect and improve what will happen in the future. Business operations are complex sets of activities, and to maximize profit considerable information, analysis, and decision making is required in advance of actual action. Decisions are needed when there are real alternatives that managers can choose from to deal with operating problems. Without high-quality information, business could not be conducted. David Diamond is the owner of the Galaxy chain of four-star prestige hotels. These hotels are in Chicago, London, Los Angeles, Montreal, New York, Seattle, Tokyo, and Vancouver. Diamond is currently struggling to set weekend rates for the Vancouver hotel (the Vancouver Galaxy). From Sunday through Thursday, the Galaxy has an average occupancy rate of 90%. On Friday and Saturday nights, however, average occupancy declines to less than 30%. Galaxys major customers are business travellers who stay mainly Sunday through Thursday. The current room rate at the Galaxy is $180 a night for single occupancy and $216 a night for double occupancy. These rates apply seven nights a week. For many years, Diamond has resisted having rates for Friday and Saturday nights that are different from those for the remainder of the week. Diamond has long believed that price reductions convey a nonprestige impression to his guests. The Vancouver Galaxy highly values its reputation for treating its guests as royalty. Most room costs at the Galaxy are fixed on a short-stay (per-night) basis. Diamond estimates the variable costs of servicing each room to be $24 a night per single occupancy and $26.40 a night per double occupancy. Many prestigious hotels in Vancouver offer special weekend rate reductions (Friday and/or Saturday) of up to 50% of their Sunday-through-Thursday rates. These weekend rates also include additional items such as breakfast for two, a bottle of champagne, and discounted theatre tickets. Forecasting outcomes are the heart of a decision. There will almost always be a gap between what was expected and what is actually realized because the future cannot be predicted with accuracy. A good decision process includes a post-implementation assessment and explanation of the key causes of differences between expected and actual outcomes. This is how managers learn from their experiences

Required:

Write a report from the standpoint of Dimond and include all the following concerns:

a. Would you recommend that Diamond reduce room rates at the Vancouver Galaxy on Friday and Saturday nights? What factors to protect the value proposition should be considered in his decision? (15 marks)

b. In six months time, the Grey Cup is to be held in Vancouver. Diamond observes that several four-star prestige hotels have already advertised a Friday-through Sunday rate for Grey Cup weekend of $360 a night. Should Diamond charge extra for the Grey Cup weekend? Explain. (10 marks)