Maximizing Profit in a Hotel

Maximizing Profit in a Hotel

In the daily operations of a hotel, there are various costs that are involved. These costs can be direct or indirect expenses. All the direct costs in a hotel vary depending with the level of production. For instance, in the Food and Beverage, the costs associated with the food sales are considered to be direct costs. In relation to this, if the hotel sells more dishes, the hotel will have to incur most costs. However, the hotel incurs fewer costs for the foods if the number of the servings sold in a day is less (Ojugo, 2009).  This implies that the chef has to make requisitions for the foods that are needed in the kitchen on daily bases. In addition to buying the foods, other costs involved in food preparation, include water, fuel, utensils, and paying the kitchen staff.

In the housekeeping and the front office departments, direct costs are also incurred when the guests or the hotel employees make telephone calls since such calls have to be paid by the clients or by the hotel (O’Fallon & Rutherford, 2010).  Other expenses that might be incurred in housekeeping include contract cleaning expenses, laundry and dry cleaning, guest transportation, purchase of linen, guest supplies, cleaning supplies, printing, and stationary.

Indirect costs in a hotel are the costs that do not vary with the level of production. These may include fixed charges or costs that are incurred for the benefit of the whole hotel without being associated to specific departments. For instance, if the hotel had taken some insurance cover, and then some equipment is lost through burglary, the replacement done by the insurance company is a form of a fixed cost (O’Fallon & Rutherford, 2010). In addition, the hotel may also pay some undistributed expenses such as electricity, water, and rent.

The difference between a hotel and the manufacturing industry is that hotel provides services to the guests while manufacturing industry is involved in making products (Dittmer & Keefe, 2008). As such, the costs incurred in making the products are recovered after selling the products to the consumers. Conversely, the cost incurred in providing service to the guests or customers in a hotel are covered when the bills are cleared by the clients (Hansen & Mowen, 2014). In relation to the economies of scale, in the manufacturing industry, the average cost curve declines as the production increases. In this regard, a manufacturing company saves money when higher quantities of goods are produced. The economies of scale may not apply in the hotel industry because variable costs such as purchase of ingredients are more valuable than the fixed costs such as rent. For example, people visiting a restaurant will pay more for the service provided and not for the quality of the equipment used. As a result, prices in a hotel do not need to be low to attract customers since it may also imply low quality in service. Furthermore, in manufacturing industry some additional costs might be incurred in storing the finished products until they are delivered to the clients. However, such costs are not incurred in hotels because the service is given to the guests when they require it.

For a hotel to operate appropriately, there are various resources that must be hired. For instance, in the Food and Beverage department service staff and the kitchen staff have to be hired while in the other departments there are resources such as room stewards, receptionists, accountants, security officers, and cleaners. According to economic principles, a hotel should hire more resources if the marginal benefits of doing so exceed the marginal costs associated with hiring. Therefore, the quantity of the resources required in the hotel depends on the amount of work to be done (Waljer, 2006).  For instance, the number of service staff will vary depending on the size of the hotel and the number of guests that it receives in a day. For this reason, more resources may be required during the peak season than in the low season. In the hotel industry, expenses have to be controlled in order to maximize profits. In essence, the cost of production of a service or a product should cater for the 40% of the selling price (Sheela, 2009). By doing so, at least a profit margin of 60% will be realized after every sale.

As an economist, the overwork of the employees has to be considered to ensure that they are compensated accordingly. In fact, the overwork of the employees should be avoided by hiring enough workers and letting them only work within the recommended hours of operation (Sheela, 2009).  In this case, the employees should work in shifts to avoid overworking but when they work for more hours they should be compensated for the overtime. However, overtime in the hotel industry should only be encouraged if the marginal benefits of employee overwork exceed the marginal costs incurred in paying for the overtime.

References

Dittmer, P. & Keefe, J. (2008). Principles of Food, Beverage, and Labor Cost Controls. New        York: Routledge.

Hansen, D. & Mowen, M. (2014). Cornerstones of Cost Management. Michigan: Cengage             Learning.

O’Fallon, M. & Rutherford, D. (2010). Hotel Management and Operations. New York: John        Wiley & Sons.

Ojugo, C. (2009). Practical Food and Beverage Cost Control. New York: Cengage Learning.

Sheela, A. (2009). Economics of Hotel Management. Michigan: New Age International.

Waljer, J. (2006). Fundamentals of Management Accounting. Boston: Elsevier.

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