Feeling Hotel is a three-star hotel located at Oil village in Takoradi. The hotel has a holding capacity of 100 rooms but operates at an average of 80% capacity. The Hotel serves

Feeling Hotel is a three-star hotel located at Oil village in Takoradi. The hotel has a holding capacity of 100 rooms but operates at an average of 80% capacity. The Hotel serves individuals and institutional clients. 40 percent of its monthly holding capacity is on monthly fixed subscription by Oil Guru. Feeling Hotel provides facilities that resonates with tourists.

Until March 2020, Flamingo’s accommodation rate is 30% above industry average. Despite their premium price, the hotel always operates at 80% capacity, achieving 15% margin of safety.

In March 2020, Feeling Hotel revenue came under a threat following the outbreak of COVID-19 pandemic. Oil Guru cancelled their monthly fixed subscription indefinitely, tourists’ visits dipped by 80% and 98% for March and April 2020 respectively. The hotel’s revenue stream from food and beverage (previously constituting 20% of total revenue prior to the pandemic) was not unaffected; daily delivery to oil companies shot up by 200%. Flamingo shut all other divisions, aside the food and restaurant; and laid off over 90% of its non-catering staff.

Business operation is expected to resume from April 2022. The management accountant presented a position paper on business climate of the hotel. Notable projections of the management accountant are as follows:

  1. Company revenue flow is expected to occur in proportion 1:2:5 for the respective quarter 2, quarter 3 and quarter 4 of 2022.
  2. That corporate clients of Feeling’s accommodation services will be more price sensitive and will request 60-day credit period (not the usual 30 days).
  3. That hotel subscriptions from tourist’s accommodation will remain low, at least for the next 12 months.
  4. Company fixed cost is estimated for 2022 as GHC250,000. Outlay for fixed cost is evenly spread for respective three quarters in 2022.
  5. That Feeling will face a stiffer competition from a new three-star hotel, Seasons Hotel. The new hotel recently launched a localized business promotion that promises to deliver “quality of three-star” at a price of “two-star”. Insider sources at Season’s hotel intimated that their hotel will fully implement total quality management systems, which will ensure that the company minimizes external failure cost and achieve 98% repeat buy.

Extract of cost and revenue, projections for the three quarters in 2022 financial year, are presented below:

Accommodation Events Food and Restaurant
Revenue projection for three quarters in 2022 (GHC) 1,200,000 200,000 800,000
Capacity utilization ratio 60% 20% 90%
Contribution margin ratio 25% 40% 30%
Fixed Cost Utilization rate 60% 10% 30%
Credit Terms 60 days 30 days 30 days

With all these in mind, the management of Feeling Hotel proactively consulted the GIMPA Strategic Cost Management Consulting Group to review their projections and help strategize for 2022.

Required:

1. In a memo, proffer your thoughts on quarterly operational cashflow position for each of the three business lines for the three quarters in 2022. Support your argument with relevant quarterly operational cashflows

[Hint: Assume cashflows occur at the end of each given month]

25 marks

2. With relevant computations, evaluate minimum capacity utilization rate that will yield a break-even position for each of the three divisions.

25 marks

3. With your knowledge in total quality management, proffer practical recommendations on how Feeling Hotel would implement total quality management to counter competitive threats pose by Seasons Hotel.

25 marks

4. Porter (1998) argues that SBUs – could achieve strategic reduction in their costs, sustain competitive advantage, increase sales and profitability at the expense of competitors using generic strategies. Advise Feeling hotel on generic strategy for each of their three SBUs.

25 marks


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