Question 1 Continental Hotel Budget 50 Marks The following information related to The Continental Hotel: Their main customers are business people and travelling sales people who need to stay in Durban for a few days. All hotel rooms have two single beds, are rented out for the same price per night, irrespective of the number of guests. There is no variation in the price for different times or seasons of the year. Breakfast and dinner, in the hotel dining room, is included in the price of the accommodation, but beverages are excluded. The hotel has a private gym and a swimming pool for the use of guests, as well as a very popular restaurant that is open to the public. Hotel guests are also welcome to dine at the restaurant at their own expense. The gym equipment is seven years old and therefore much of the equipment is broken and needs replacing. The management have decided to replace one new item in the gym per month, until all items have been replaced. Cash Budget for The Continental Hotel for November 2020 to January 2021: November 2020 Dec 2020 Jan 2021 Receipts: Budgeted Actual Budgeted Budgeted Room rental paid in cash 930 000 1 020 000 B Restaurant and beverage sales 165 400 187 500 C 150 514 Total Receipts 1 095 400 1 207 500 ? ? Payments Salaries Electricity Cash Purchases of Food & Beverages Payments to Creditors Admin and Internet Security Sundry other Expenses Maintenance Replacement of Gym Equipment Total Payments 592 200 592 200 55 800 81 600 245 000 263 000 57 31 7 300 9 000 9 150 25 000 25 000 3 100 3 100 68 000 63 700 17 000 17 000 (1 072 400) (1 112 050) D 27 900 320 000 ? 5 000 25 000 3 286 68 000 14 500 ? E 41 850 183 500 ? 7 200 25 000 3 484 68 000 14 500 ? Surplus / Deficit Beginning Bank Balance End Bank Balance 23 000 33 400 56 400 95 450 33 400 128 850 ? ? ? ? ? ? Page 2 of 3 Additional Information: 1) The budgeted amounts for November, December and January were drawn up in October. They were therefore not influenced by what actually happened in November 2020. 2) It was budgeted that the rooms in November would be filled for 20 nights; December only 10 nights and January it was budgeted to be filled at an average of 15 nights 3) It is estimated that there would be an increase of 40% in both restaurant and beverage sales in December 2020. This is then expected to drop from December to January 2021 4) All staff receive a 40% bonus at the end of November. They receive their normal salary amount in December. There is a planned salary increase of 8% from January 2021. 5) The Continental Hotel buys some of their food and beverages on credit. They purchase nothing else on credit. They have negotiated the following terms to pay back their creditors: 80% will be paid back in the month after purchase to receive a 5% discount. The remaining 20% will be paid back in the next month. HOTEL Credit purchases for November and December were R65 200 and R82 000 respectively. 6) Interest on Overdraft is charged at 18% per annum and is included in admin expenses. . @ Information for Question 1.8 Siya, the manager did some research into reducing the hotels electricity costs. His findings were as follows: O O O The total spent / estimated for electricity for the year ended December 2020 was R700 000. It is expected that the total electricity expenses for 2021 will be R780 000 The accountant has estimated that the hotels electricity is used in the following ways: 20% is for lighting 30% is used by the kitchen and miscellaneous items 35% is used by the geysers in the guest rooms 15% is used by the air conditioners throughout the hotel LED Lights not only last much longer that their current light bulbs, but use 75% less energy and produce less heat, therefore saving on air conditioning costs. To replace the light fittings in the lounge and dining areas will cost R95 000. To replace the rooms with LED lights will cost R140 000. . There are new thermostats available with motion sensors that will turn off the air- conditioning/heaters when the guests are not in their rooms. The accountant estimates that this should save about 30% of what is currently being spent on air conditioners. To replace the current thermostats in the rooms will cost R102 500. O Replacing all the electric geysers with solar geysers, that use no electricity, will cost a total of R640 000. Questions: (Round all answers to 2 decimal places) Question 1 Continental Hotel Budget 50 Marks (2) 1.1 Explain, giving TWO points, how a cash budget is used as a management tool. 1.2 (4) Explain why you think they have budgeted for so few hotel guests during December 2020, which is in the middle of the holiday period, and yet their budgeted food and beverage sales have increased during the same month. 1.3 Complete the Creditors Payment Schedule below: (8) Credit Purchases December 2020 January 2021 October 12 080 0 November December Total Payments 1.4 Calculate the numbers designated by the letters A-E (10) A B C D E 8 1.5 Explain TWO control measures that can be implemented to make their gym equipment last longer. 1.6 When Siya walked into the gym, he discovered three people using the gym who were (4) not paying guests at the hotel. Identify TWO possible solutions to this problem. 1.7 The main reason that The Continental Hotel is in overdraft by the end of the year is because they have so few bookings in December. Discuss TWO alternative solutions to bring in money over December. (6) 1.8 Siya is adamant about implementing power-saving alternatives over the next five years. 1.8.1 Calculate the impact that the three cost-saving initiative he has researched would have on the electricity expense over the 2021 year, should they be implemented Amount saved from LED Lights Amount saved from air conditioning thermostats Amount saved from solar geysers Page 3 of 3 (8) 3.2 Explain whether you would advise Siya to go ahead with the three cost saving initiatives. In your explanation you need to show how long it will take for the savings to cover the costs of the incentives together. You also need to mention one factor not linked to the costs. Total Savings: Cost of implementing these initiatives: Length of time (in months) to cover costs: Other factor to consider: Advice