break even point computation for hotel

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Developed by: Drs. Agustinus Agus Purwanto, MM Page:

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BEST PRACTICE HOTEL BREAK‐EVEN POINT

Drs. Agusttinus Agus Purwanto, MM

2/11/2009

This document is prepared to analysis Budget Year 2009 being proposed to Hotel’s Owner, the objective to compute Break – even Point is to ensure the Monthly breakdown was objective and achievable. To see which month is bad performance and best performance. As Director of Finance will be assist Sales & Marketing to analyze by increasing and reducing the Room Rate when requested


Developed by: Drs. Agustinus Agus Purwanto, MM Page: 1

Hotel Room Division Break-even Point



BEST PRACTICE HOTEL BREAK-EVENT POINT 1. Formula

What is hotel break-even point computed by, the hotel is complex in business operation according to which Departmental Profit we want to compute the “Break-even Point” will meet the difficutly to follow “Break-Even Point” method as following without to know the caracteristic of expenses: Formula A

BE=FC/ (1-VC %) BE Break Even Point FC Fixed Costs VC Variable Costs

Formula B

BEP = break-even point (units of production) TFC = total fixed costs, VCUP = variable costs per unit of production, SUP = selling price per unit of production

Formula C

1. Break-even point (in units) =

margin oncontributiunit

expenses fixed

2. Contribution-margin ratio =

price salesunit

margin oncontributiunit

3. Break-even point (in sales dollars) =

ratio margin-oncontributiexpenses fixed

Formula D Classic Spread Sheet from Consolidated

Budget

Other Formula Still many other formulas like as Mathematic Equation etc.



2. Hotel Departmental Profit

In the hotel business has many types of Departmental Profit to follow Uniform System of Account for Hotel. These departmental profit can be minimized into three profit center as follow:

a. Room Division Departmental Profit b. Food and Beverage Division Departmental Profit, and c. Other Operated Departmental Profit

2.1 Room Divison Departmental Profit

The main core business is services but is not really pure services business, because we also supply some operation supplies into the room for free to our guests. Cost and Expenses in the Room Divison Department ussualy categoried as follow: a. Payroll in this Best Practice is Fixed Cost, in the Consuldated Room Division Budget

appear constant as Fixed Cost b. Provision in this Best Practice is Fixed Cost, but you can calculate this expenses by

percentage of Sales and then become as Vaiable Cost c. Other Expenses in this Best Practice can be Fixed Cost or Variable Cost depend how you

calculated in the budget, when is constant every month will be Fixed Cost and when the expenses based on the room occupancy, total sales or number of guest will categoried as Variable Cost

If you are not following this method the Break – Even Point figures will be big differences when you are computing with another FORMULA.

2.2 Food and Beverage Division Departmental Profit

The main core business is not services, but combination between service and production / manufacturer, so you have to use different Formula to Food and Beverage Departmental Profit. Which will be analysis on the next Best Practice. Cost and Expenses in the Food and Beverage Departmental Profit different with Room Division Departmental Profit. This Cost and Expensres ussualy categoried as follow: a. Payroll in this Best Practice is Fixed Cost, in the Consuldated Food and Beverage

Departmental Budget appear constant as Fixed Cost b. Cost of Sales – In Food and Beverage Departmental Profit has Cost of Sales but in the

Room Departmental Profit is not, this expense in this Best Practice as Variable Cost c. Provision in this Best Practice is Fixed Cost, but you can calculate this expenses by

percentage of Sales and then become as Vaiable Cost d. Other Expenses in this Best Practice can be Fixed Cost or Variable Cost depend how you

calculated in the budget, when is constant every month will be Fixed Cost and when the expenses based on total sales or number of cover will categoried as Variable Cost



2.3 Other Operated Departmental Profit

The main core business is also not really service, this is combined between service and production, the formula can use the same with Food and Beverage Division Department Profit. When you are using Classic Spread Sheet Break-even Point Analysis will some expenses different classification. Mean in the Food and Beverage Departmental Profit as Variable Cost but in the Other Operated Departmental Profit as Fixed Cost.

3. Classic Spread Sheet Break-even Point Analysis for Room Division

The Classic Spread Sheet Break-even Point Analysis is the easier way to calculate Room Divison Departmental Profit Break-even Point. This method can be prepared by following steps:

a. STEP ONE

Prepare Consulidated Operating Budget Summary and Monthly

b. STEP TWO

Move the expenses to Fixed Cost for constant expenses and move to Variable Cost for non constant expenses, all exepses calculated based on Occupied Room, Number Guest, Number Cover or Percentage of Sales

c. STEP THREE

Calculate the Contribution Margin the simple formula as bellow:

(S – VC)/S Sales – Variable Cost divided by Sales

d. STEP FOUR

Calculate the Break-even Sales Volume the simple formula as below:

FC/CM Fixed Cost divided by Contribution Margin

e. STEP FIVE

Do calculation the Break-even Point Analysis by using the Classic Spread Sheet as sample

f. STEP SIX

Do test with one of the formula as above or other furmula do you have



Example: MONTHLY BREAKDOWN OF CONSOLIDATED ROOM DIVISION BUDGET Based on Proposed Budget 2009

BUDGET FOR 2009 - MONTH BY MONTH

Break-Even Analysis

Yearly Total % of Sales

Descriptions Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

Sales

239,986.00

226,089.00

210,177.00

244,581.00

306,720.00

327,720.00

365,324.00

362,475.00

325,616.00

254,896.00

253,186.00

273,228.00 $3,389,998.00

Fixed Costs

Payroll

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37

19,718.37 $236,620.50 6.98%

Provision

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00

1,550.00 $18,600.00 0.55%

In House Movie/Satellite TV

230.00

230.00

230.00

230.00

230.00

230.00

230.00

230.00

230.00

230.00

230.00

230.00 $2,760.00 0.08%

Music Entertainment

250.00

250.00

250.00

250.00

250.00

250.00

250.00

250.00

250.00

250.00

250.00

250.00 $3,000.00 0.09%

Reservation Expenses

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00 $900.00 0.03%

Subscription - Newspaper

266.67

266.67

266.67

266.67

266.67

266.67

266.67

266.67

266.67

266.67

266.67

266.67 $3,200.00 0.09%

Administration & General

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85

12,393.85 $148,726.15 4.39%

Human Resources

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78

1,960.78 $23,529.41 0.69%

Sales & Marketing

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19

6,907.19 $82,886.30 2.45%

P.O.M.E.C

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61

3,592.61 $43,111.33 1.27%

Interest Charges

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00

22,800.00 22,800.00 273,600.00 8.07%

Other Fixed Charges

764.00

764.00

764.00

764.00

764.00

764.00

764.00

764.00

764.00

764.00

764.00

764.00 $9,168.00 0.27%

Depreciation

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00

39,520.00 39,520.00 $474,240.00 13.99%

Total Fixed Costs 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 $1,320,341.69 38.95%



Variable Costs

T/A Commission

540.06

414.36

678.90

730.06

471.44

542.16

762.40

569.70

452.98

570.98

746.93

569.62 $7,049.58 0.21%

Flower & Decorations

669.03

835.44

114.79

591.77

507.76

80.12

1,063.45

496.81

386.10

348.25

255.97

321.75 $5,671.24 0.17%

Guest Supplies - F & B

1,853.42

1,768.94

1,758.42

2,030.68

2,618.88

2,646.66

3,287.18

2,862.61

1,960.76

2,266.48

2,211.38

2,056.24 $27,321.65 0.81%

Guest Supplies - Amenities

3,774.11

3,267.14

2,302.50

2,893.18

3,465.25

4,706.52

4,923.64

4,289.34

6,294.50

3,795.38

3,564.17

3,146.36 $46,422.10 1.37%

Guest Relocations

524.95

428.82

(76.12)

113.78

569.03

890.43

834.36

320.53

1,361.89

551.78

435.15

836.98 $6,791.57 0.20%

Laundry Operation - Linen

3,578.73

3,353.71

3,307.23

4,035.15

4,843.78

5,313.00

6,307.01

5,005.79

5,630.77

4,605.13

4,360.30

3,919.69 $54,260.29 1.60%

Laundry Uniform

361.87

360.74

383.48

384.01

360.31

364.88

383.09

367.77

359.97

367.92

386.73

361.74 $4,442.49 0.13%

Printing & Stationery

1,132.69

1,136.84

1,101.48

1,137.57

1,693.84

1,397.94

1,929.05

1,853.35

2,277.12

1,378.54

1,411.59

1,437.46 $17,887.47 0.53%

Cleaning Supplies & Tools

1,521.84

1,489.94

1,452.48

1,598.45

2,195.18

2,020.74

2,626.22

2,354.40

1,088.17

1,891.84

1,880.31

1,832.26 $21,951.85 0.65%

Entertainment

1,671.88

1,470.33

2,434.81

1,937.67

1,804.79

1,397.83

2,149.47

2,387.38

207.69

1,753.67

2,402.20

2,071.10 $21,688.82 0.64%

Telephone & Fax

472.10

387.72

635.26

638.19

441.14

507.31

633.14

533.08

423.86

534.28

652.93

470.10 $6,329.11 0.19%

Transportation

1,021.84

989.94

452.48

848.45

1,445.18

1,520.74

1,126.22

1,354.40

1,088.17

1,891.84

1,880.31

1,832.26 $15,451.85 0.46%

Other Operating Supplies

193.94

159.28

260.97

262.17

181.22

208.40

260.09

218.99

174.12

219.48

268.23

193.12 $2,600.00 0.08%


7,560.18

6,550.61

10,196.03

8,781.62

7,339.83

7,318.03

9,403.26

10,139.29

4,491.62

7,607.79

9,591.61

7,870.43 $96,850.27 2.86%

Human Resources

1,650.91

1,369.34

2,206.28

1,893.35

1,566.33

1,559.11

1,949.78

2,201.35

950.65

1,593.72

2,100.34

1,819.13 $20,860.30 0.62%

Sales & Marketing

6,980.17

6,820.66

7,682.28

7,350.93

6,995.86

6,983.66

7,499.89

7,681.00

6,264.44

7,150.01

7,702.12

7,199.22 $86,310.24 2.55%

P.O.M.E.C

21,888.00

19,706.39

24,273.37

22,720.16

24,899.02

25,957.27

30,433.83

31,363.97

22,046.48

23,159.12

26,362.42

24,314.27 $297,124.32 8.76%

Management Fees

11,225.11

9,952.46

11,831.75

11,543.21

14,076.06

15,026.07

17,729.37

18,236.86

13,192.61

12,085.93

13,545.64

13,065.34 $161,510.42 7.84%

Total Variable Costs 66,620.81 60,462.65 70,996.38 69,490.39 75,474.91 78,440.86 93,301.47 92,236.64 68,651.90 71,722.15 79,758.32 73,317.08 $900,523.57 26.56%

Income from Operations 63,336.72 55,597.87 29,152.15 65,062.14 121,216.61 139,250.66 161,994.06 160,209.89 146,935.63 73,095.38 63,399.21 89,882.45 1,169,132.76 34.49%



Income from Operations Analysis

Contribution Margin 72.24% 73.26% 66.22% 71.59% 75.39% 76.06% 74.46% 74.55% 78.92% 71.84% 68.50% 73.17% 73.44%

Break-Even Sales Volume 152,310.24 150,194.87 166,154.27 153,696.84 145,940.11 144,651.22 147,767.33 147,582.94 139,424.27 153,152.19 160,629.89 150,381.28 1,797,952.05 53.04% Sales Volume Above Break-Even 87,675.76 75,894.13 44,022.73 90,884.16 160,779.89 183,068.78 217,556.67 214,892.06 186,191.73 101,743.81 92,556.11 122,846.72 1,592,045.95 46.96%

Room Available

6,200

5,200

6,200

6,000

6,200

6,000

6,200

6,200

6,000

6,200

6,000

6,200

72,600

Room Sold

2,660

2,566

2,479

2,652

3,581

3,959

4,198

4,165

3,984

2,929

2,874

3,101

39,148

Average Room Rate $90.22 $88.09 $88.09 $84.79 $92.22 $85.64 $82.78 $87.02 $87.03 $81.73 $87.02 $88.08 86.00 Income from Operations Analysis

Average Room Rate $90.22 $88.09 $88.09 $84.79 $92.22 $85.64 $82.78 $87.02 $87.03 $81.73 $87.02 $88.08 $86.00

Breakeven Room Night

1,689 1,705 1,887 1,813 1,583 1,690 1,786 1,696 1,602 1,874 1,846 1,708 20,907

% Occupancy Breakeven 27.2% 32.8% 30.4% 30.2% 25.5% 28.2% 28.8% 27.4% 26.7% 30.2% 30.8% 27.5% 28.8%



8

4. TEST USE FORMULA A

We do test the Classic Spread Sheet Break-even Point with the formula A as per page 1 with the formula as bellow:


We do test for January 2009 for Room Division as follow: JANUARY 2009 BREAK-EVEN POINT: Fixed Cost: $110,028.47 VC%: 27.760290% Solution on Break-even point of January 2009 Room Division as bellow: BE = $110,028.47/(1-27.760290%) BE = $110,028.47/72.2397% BE = $110,028/0.722397 BE = $152,310.24 compare with Classic Spread Sheet is $ 152,310.24 We do test for Total 2009 for Room Division as follow: TOTAL 2009 BREAK-EVEN POINT: Fixed Cost: $1,320,341.69 VC%: 26.564132% Solution on Break-even point of Total 2009 Room Division as bellow: BE = $1,320,341.69/(1-26.564132%) BE = $1,320,341.69/73.4359% BE = $1,320.341.69/0.734359 BE = $1,797,952.28 compare with Classic Spread Sheet is $ 1,797,952.28



5. TEST USE EQUATION

The result of Classic Spread Sheet Break-even Point also can be proved by using “Equation Method” as following:

Sales = Variable Cost + Fixed Cost + Profit

To prove January 2009 Result of Classic Spread Sheet Break-even Point for Room Division: Information we got as follow:

Average Room Rate = $90.22 Sales = $236,986 Room Sold = 2660 Fixed Cost = $110,028.47 Variable Cost = $66,620.81

Proved:

Variable Cost per Occupied = $66,620.81 / 2660 = $ 25.045 $90.22Q = $25.045Q + $110,028.47 + $0 65.175Q = 110,028.47 Q = 1,688.21 ronded 1,689 R/N compare with Classic Spread Sheet BEP 1,689 R/N You can do test the other months and in Yearly Total with this Equation Method



6. BREAKEVEN CHART

This is Breakeven Chart for January 2009, you are free to do for another month within the Classic Spread Sheet Break-even Point:

Breakeven Chart

-

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

Room Sold

Mon

ey

Operating Surplus (110,028.47) (73,335.18) (36,641.89) 51.40 36,744.69 73,437.98 110,131.27 Variable Costs - 14,100.57 28,201.14 42,301.71 56,402.28 70,502.85 84,603.42 Fixed Costs 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 110,028.47 Business Revenue - 50,793.86 101,587.72 152,381.58 203,175.44 253,969.30 304,763.16 Total Costs 110,028.47 124,129.04 138,229.61 152,330.18 166,430.75 180,531.32 194,631.89

- 563.00 1,126.00 1,689.00 2,252.00 2,815.00 3,378.00



Hotel F & B Division Break-even Point



7. Hotel F & B Departmental Profit

1.1. Food and Beverage Payroll

Payroll in this Best Practice is Fixed Cost, in the Consuldated Food and Beverage Departmental Budget appear constant as Fixed Cost

1.2. Food and Beverage Cost of Sales

Cost of Sales – In Food and Beverage Departmental Profit has Cost of Sales but in the Room Departmental Profit is not, this expense in this Best Practice as Variable Cost

1.3. Provision of Food and Beverage

Provision in this Best Practice is Fixed Cost, but you can calculate this expenses by percentage of Sales and then become as Vaiable Cost

1.4. Other Expenses

Other Expenses in this Best Practice can be Fixed Cost or Variable Cost depend how you are calculated in the budget, when is constant every month will be Fixed Cost and when the expenses based on total sales or number of cover will categoried as Variable Cost

You are never can to compute by using formula directly without to identify the expenses caracter, because the Fixed Cost such as Administration, Human Resources, Sales & Marketing and Property Operation & Energy Cost (P.O.M.E.C) share with Room Division and Other Operated Department. In this case you can splite based on Revenue percentage. Your operation Break-even Point will be wrong when you don’t split the above Expenses, also you will to find difficulties when you are not moving your expenses into the two categories expense i.e., Fixed Cost and Variable Cost. Do not confusing with Cost of Sales, because this expenses should be categoried by Variable Cost because these expenses will be increase or decrease paralel to the Food and Beverage Sales. Remember to compute Break-even Point, you only need Fixed Cost and Variable Cost. The Cost of Sales is the presentation in the Profit and Loss format. So, to get the Calculation you can follow the steaps as bellow:



8. Classic Spread Sheet Break-even Point Analysis

The Classic Spread Sheet Break-even Point Analysis is the easier way to calculate Food and Beverage Divison Departmental Profit Break-even Point. This method can be prepared by following steps:

a. STEP ONE


b. STEP TWO

Move the expenses to Fixed Cost for constant expenses and move to Variable Cost for non constant expenses, all exepses calculated based on Number Guest, Number Cover or Percentage of Sales

c. STEP THREE



d. STEP FOUR



e. STEP FIVE


f. STEP SIX




Example: MONTHLY BREAKDOWN OF CONSOLIDATED FOOD AND BEVERAGE DIVISION BUDGET Based on Proposed Budget 2009


Break-Even Analysis Year 1 % of Sales 1/09 2/09 3/09 4/09 5/09 6/09 7/09 8/09 9/09 10/09 11/09 12/09

Sales

134,835.30

114,123.67

188,093.22

137,513.67

132,954.15

133,924.07

168,622.04

183,069.25

83,046.27

142,083.21

185,996.77

145,738.38 $1,750,000

Fixed Costs

Payroll

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57

17,704.57 $212,455 12.14%

Provision

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00

1,950.00 $23,400 1.34%


6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77

6,400.77 $76,809 4.39%

Human Resources

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64

1,012.64 $12,152 0.69%

Sales & Marketing

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20

3,567.20 $42,806 2.45%

P.O.M.E.C

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39

1,855.39 $22,265 1.27%

Depreciation $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $20,410 $244,920 14.00%

Total Fixed Costs $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $52,901 $634,807 36.27%

Variable Costs

Cost of Sales

38,790.29

32,757.48

53,989.27

39,020.77

38,162.44

38,440.86

48,400.38

52,547.25

23,837.18

40,782.81

53,387.56

41,831.97 $501,948 28.68%

Kitchen Fuel

1,884.84

1,431.42

2,479.78

2,068.20

1,642.43

1,968.57

2,430.12

2,318.75

1,303.33

1,960.72

2,530.50

1,879.23 $23,898 1.37%

Laundry Linen

460.58

581.27

750.80

242.32

676.75

326.70

406.91

778.86

115.88

547.76

723.95

736.41 $6,348 0.36%

Music Entertainment

2,666.00

2,064.00

3,400.00

3,234.00

2,390.00

2,671.00

3,409.00

3,247.00

1,926.00

2,793.00

3,495.00

2,725.00 $34,020 1.94%

Cleaning Supplies

609.66

599.64

986.39

547.69

718.46

582.85

751.41

1,015.01

271.23

639.35

900.37

715.96 $8,338 0.48%

Guest Supplies F & B

1,153.04

954.07

1,622.75

1,195.61

1,112.18

1,173.34

1,466.74

1,570.56

711.03

1,202.41

1,595.00

1,211.65 $14,968 0.86%


580.20

617.95

1,002.09

524.07

748.78

534.10

700.99

1,058.03

203.89

608.78

883.91

718.21 $8,181 0.47%

Decorations

172.41

112.18

201.41

225.44

124.61

186.89

226.40

175.83

139.19

178.21

219.85

156.89 $2,119 0.12%



Menu & Wine List

47.88

31.15

55.93

62.61

34.61

51.90

62.88

48.83

38.66

49.49

61.06

43.57 $589 0.03%

Spoilage

61.91

40.28

72.33

80.96

44.75

67.11

81.30

63.14

49.98

63.99

78.95

56.34 $761 0.04%

Telephone & Fax

86.28

56.14

100.79

112.81

62.36

93.52

113.29

87.99

69.66

89.18

110.02

78.51 $1,061 0.06%

Laundry Uniforms

663.54

675.88

1,097.12

633.44

808.57

625.28

810.81

1,146.99

263.57

697.86

987.64

792.23 $9,203 0.53%

F & B Promotions

208.79

135.85

243.91

273.01

150.91

226.32

274.17

212.93

168.57

215.81

266.24

189.99 $2,567 0.15%

Bar Supplies

21.01

13.67

24.55

27.47

15.19

22.78

27.59

21.43

16.96

21.72

26.79

19.12 $258 0.01%

Banquet Expenses

106.90

69.55

124.88

139.78

77.26

115.88

140.38

109.02

86.31

110.50

136.32

97.28 $1,314 0.08%

Entertainment

61.88

40.26

72.28

80.91

44.72

67.07

81.25

63.10

49.96

63.96

78.90

56.31 $761 0.04%

Miscellaneous

75.49

49.07

87.90

98.40

54.72

80.98

98.30

76.42

60.26

77.47

95.81

67.81 $923 0.05%


3,904.43

3,383.04

5,265.71

4,535.24

3,790.63

3,779.38

4,856.29

5,236.41

2,319.68

3,929.02

4,953.56

4,064.66 $50,018 2.86%

Human Resources

852.61

707.19

1,139.43

977.82

808.92

805.20

1,006.96

1,136.88

490.96

823.07

1,084.71

939.49 $10,773 0.62%

Sales & Marketing

3,604.89

3,522.51

3,967.49

3,796.37

3,612.99

3,606.69

3,873.30

3,966.83

3,235.25

3,692.60

3,977.74

3,718.02 $44,575 2.55%

P.O.M.E.C

11,304.00

10,177.31

12,535.92

11,733.77

12,859.04

13,405.56

15,717.47

16,197.84

11,385.85

11,960.47

13,614.80

12,557.04 $153,449 8.77%

Total Variable Costs $67,317 $58,020 $89,221 $69,611 $67,940 $68,832 $84,936 $91,079 $46,743 $70,508 $89,209 $72,656 $876,071 50.06%

Income from Operations $14,618 $3,203 $45,972 $15,002 $12,113 $12,191 $30,786 $39,090 ($16,598) $18,674 $43,888 $20,182 $239,122 13.66%





Break-Even Sales Volume $105,643 $107,608 $100,637 $107,132 $108,182 $108,841 $106,591 $105,277 $121,015 $105,013 $101,659 $105,492 $1,271,170 72.64%

Sales Volume Above Break-Even $29,192 $6,516 $87,456 $30,382 $24,772 $25,083 $62,031 $77,792 ($37,969) $37,071 $84,338 $40,246 $478,830 27.36%

Guest

5,191

4,885

4,847

5,180

7,076

7,728

8,368

8,274

7,827

5,754

5,691

6,077

76,898

Cover

11,063

10,030

15,033

12,814

11,928

11,577

14,785

15,862

7,512

10,809

10,910

11,700

144,023 Capture Rate 213.1% 205.3% 310.2% 247.4% 168.6% 149.8% 176.7% 191.7% 96.0% 187.9% 191.7% 192.5% 187.3% Income from Operations Analysis Average Room Rate $12.19 $11.38 $12.51 $10.73 $11.15 $11.57 $11.40 $11.54 $11.06 $13.14 $17.05 $12.46 $12.15

Breakeven Cover

8,668

9,457

8,043

9,983

9,706

9,409

9,346

9,122

10,946

7,989

5,963

8,469

104,616 Breakeven Capture Rate 167.0% 193.6% 165.9% 192.7% 137.2% 121.7% 111.7% 110.2% 139.9% 138.8% 104.8% 139.4% 136.0%



17




We do test for January 2009 Food and Beverage Division as follow: JANUARY 2009 BREAK-EVEN POINT: Fixed Cost: $52,900.58 VC%: 49.925% Solution on Break-even point of January 2009 Food and Beverage Division as bellow: BE = $52,900.58/(1-49.925%) BE = $52,900.58/50.07492% BE = $52,900/0.5007492 BE = $105,642.86 compare with Classic Spread Sheet is $ 105,642.86 We do test for Total 2009 as follow: TOTAL 2009 BREAK-EVEN POINT: Fixed Cost: $634,806.98 VC%: 50.061217% Solution on Break-even point of Total 2009 Food and Beverage Division as bellow: BE = $634,806.98/(1-50.0612%) BE = $634,806.98/49.938783% BE = $634,806.94/0.49938783 BE = $1,271,170.30 compare with Classic Spread Sheet is $ 1,271,170.29






To prove January 2009 Result of Classic Spread Sheet Break-even Point: Information we got as follow:

Average Per Cover = $12.19 Sales = $134,835.30 Cover = 11,063 Fixed Cost = $52,900.58 Variable Cost = $67,316.63

Proved:

Variable Cost per Cover = $67,316.63 / 11,063 = $ 6.084844 $12.19Q = $6.085Q + $52,900.58 + $0 6.105Q = 52,900.58 Q = 8,665.12 ronded 8,666 Covers compare with Classic Spread Sheet BEP 8,668 Cover You can do test the other months and in Yearly Total with this Equation Method



11. BREAKEVEN CHART FOR FOOD AND BEVERAGE DIVISION

Breakeven Chart

(100,000.00)

(50,000.00)

-

50,000.00

100,000.00

150,000.00

200,000.00

Cover Food and Beverage

Mon

ey

Fixed Cost 52,900.58 52,900.58 52,900.58 52,900.58 52,900.58 52,900.58 52,900.58 Variable Cost - 13,185.86 26,371.71 39,557.57 52,743.43 65,929.29 79,115.14 Operating Surplus (52,900.58) (39,675.15) (26,449.71) (13,224.28) 1.15 13,226.59 26,452.02 Total Cost 52,900.58 66,086.44 79,272.30 92,458.15 105,644.01 118,829.87 132,015.72 Revenue - 26,411.29 52,822.58 79,233.87 105,645.16 132,056.45 158,467.74

- 2,167 4,334 6,501 8,668 10,835 13,002



Hotel Minor Operated Department

Break-even Point



12. Hotel Minor Operated Departmental Profit

12.1 Minor Operated Department Payroll

Payroll in this Best Practice is Fixed Cost, in the Consuldated Minor Operated Departmental Budget appear constant as Fixed Cost

12.2 Minor Operated Department Cost of Sales

Cost of Sales – In Minor Operated Departmental Profit also has Cost of Sales but in the Room Departmental Profit is not, this expense in this Best Practice as Variable Cost

12.3 Provision of Minor Operated Department

Provision in this Best Practice is Fixed Cost, but you can calculate this expenses by percentage of Sales and then become as Vaiable Cost

12.4 Other Expenses

Other Expenses in this Best Practice can be Fixed Cost or Variable Cost depend how you are calculated in the budget, when is constant every month will be Fixed Cost and when the expenses based on total sales or number of cover will categoried as Variable Cost

You are never can to compute the Minor Operated Department by using formula directly without to identify the expenses caracter, because the Fixed Cost such as Administration, Human Resources, Sales & Marketing and Property Operation & Energy Cost (P.O.M.E.C) share with Room Division and Food and Beverage Division. In this case you can splite based on Revenue percentage. Same with Room Division and Food Beverage Division, Other Operated Department Break-even Point will be wrong when you don’t split the above Expenses, also you will to find difficulties when you are not moving your expenses into the two categories expense i.e., Fixed Cost and Variable Cost. Again do not confusing with Cost of Sales, because this expenses should be categoried by Variable Cost because these expenses will be increase or decrease paralel to the Minor Operated Department Sales. Remember to compute Break-even Point, you only need Fixed Cost and Variable Cost. The Cost of Sales is the presentation in the Profit and Loss format only.



13. Classic Spread Sheet Break-even Point Analysis

The Classic Spread Sheet Break-even Point Analysis is the easier way to calculate Minor Operated Departmental Profit Break-even Point. This method can be prepared by following steps:

a. STEP ONE


b. STEP TWO

Move the expenses to Fixed Cost for constant expenses and move to Variable Cost for non constant expenses, all exepses calculated based on Number Guest, Percentage of Sales

c. STEP THREE



d. STEP FOUR



e. STEP FIVE


f. STEP SIX




Example: MONTHLY BREAKDOWN OF CONSOLIDATED MINOR OPERATED DEPARTMENT BUDGET Based on Proposed Budget 2009


Break-Even Analysis Year 1 % of Sales 1/09 2/09 3/09 4/09 5/09 6/09 7/09 8/09 9/09 10/09 11/09 12/09

Sales

32,854.00

28,628.00

45,141.00

37,098.00

32,719.00

32,951.00

41,295.00

44,769.00

21,540.00

34,913.00

45,426.00

35,791.00 $433,125.00

Fixed Costs

Payroll

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00

7,899.00 $94,787.97 21.88%

Provision

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00

1,196.00 $14,352.00 3.31%

Cleaning Supplies

25.00

25.00

25.00

25.00

25.00

25.00

25.00

25.00

25.00

25.00

25.00

25.00 $300.00 0.07%

Guest Supplies FB

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00

75.00 $900.00 0.21%


1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00

1,590.00 $19,080.00 4.41%

Human Resources

251.55

251.55

251.55

251.55

251.55

251.55

251.55

251.55

251.55

251.55

251.55

251.55 $3,018.58 0.70%

Sales & Marketing

886.12

886.12

886.12

886.12

886.12

886.12

886.12

886.12

886.12

886.12

886.12

886.12 $10,633.44 2.46%

P.O.M.E.C

460.89

460.89

460.89

460.89

460.89

460.89

460.89

460.89

460.89

460.89

460.89

460.89 $5,530.73 1.28%

Depreciation $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $5,070 $60,840.00 14.05%

Total Fixed Costs 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 $209,442.71 48.36%

Variable Costs

Cost of Sales

6,120.54

5,010.32

8,908.09

6,962.60

6,004.34

6,055.41

7,883.52

8,644.07

3,376.19

6,486.13

8,799.38

6,679.82 $80,930 18.69%

Laundry Uniforms

111.07

105.36

129.49

111.58

111.19

108.33

470.16

595.67

87.99

110.99

127.89

116.18 $2,186 0.50%

Telephone & Fax

44.34

42.10

49.95

46.03

44.10

44.20

47.88

49.41

38.81

45.07

49.73

45.46 $547 0.13%


90.18

83.14

107.87

95.53

89.44

89.76

101.36

106.19

72.75

92.49

107.16

93.71 $1,130 0.26%



Laundry Supplies

90.00

75.00

119.00

120.00

83.00

95.00

119.00

100.00

80.00

100.00

123.00

88.00 $1,192 0.28%

Laundry Operation Linen

1,233.42

973.46

1,967.00

1,480.15

1,219.04

1,235.15

1,436.25

1,538.16

947.69

1,350.05

1,966.27

1,398.33 $16,745 3.87%

Miscellaneous

53.00

54.00

55.00

56.00

55.00

54.00

53.00

53.00

54.00

53.00

54.00

53.00 $647 0.15%


969.89

840.37

1,308.04

1,126.59

941.62

938.83

1,206.34

1,300.76

576.23

976.00

1,230.50

1,009.69 $12,425 2.87%

Human Resources

211.79

175.67

283.04

242.90

200.94

200.02

250.14

282.41

121.96

204.46

269.45

233.38 $2,676 0.62%

Sales & Marketing

895.48

875.02

985.56

943.05

897.49

895.93

962.16

985.39

803.66

917.27

988.10

923.58 $11,073 2.56%

P.O.M.E.C

2,808.00

2,528.12

3,114.02

2,914.76

3,194.28

3,330.04

3,904.34

4,023.67

2,828.33

2,971.07

3,382.02

3,119.26 $38,118 8.80%

Total Variable Costs 12,627.71 10,762.57 17,027.06 14,099.19 12,840.46 13,046.68 16,434.14 17,678.74 8,987.60 13,306.52 17,097.50 13,760.42 $167,668.60 38.71%

Income from Operations 2,772.73 411.87 10,660.38 5,545.26 2,424.98 2,450.76 7,407.30 9,636.71 (4,901.16) 4,152.92 10,874.94 4,577.02 $56,013.69 12.93%



Break-Even Sales Volume 28,350.20 27,968.01 28,024.21 28,153.28 28,727.62 28,893.84 28,991.15 28,843.51 29,950.43 28,202.48 27,987.56 28,355.14 $341,731.73 78.90% Sales Volume Above Break-Even 4,503.80 659.99 17,116.79 8,944.72 3,991.38 4,057.16 12,303.85 15,925.49 (8,410.43) 6,710.52 17,438.44 7,435.86 $91,393.27 21.10%

Guest

5,191

4,885

4,847

5,180

7,076

7,728

8,368

8,274

7,827

5,754

5,691

6,077

76,898 Income from Operations Analysis Average Price for MOD $6.33 $5.86 $9.31 $7.16 $4.62 $4.26 $4.93 $5.41 $2.75 $6.07 $7.98 $5.89 $5.63

Breakeven Guest

4,479

4,772

3,009

3,931

6,213

6,776

5,875

5,331

10,883

4,648

3,506

4,814

60,672 Breakeven Capture Rate 86.3% 97.7% 62.1% 75.9% 87.8% 87.7% 70.2% 64.4% 139.1% 80.8% 61.6% 79.2% 78.9%






We do test for January 2009 Minor Operated Department as follow: JANUARY 2009 BREAK-EVEN POINT: Fixed Cost: $17,453.56 VC%: 38.43585% Solution on Break-even point of January 2009 Minor Operated Department as bellow: BE = $17,453.56/(1-38.43585%) BE = $17,453.56/61.56415% BE = $17.453.56/0.6156415 BE = $28,350.20 compare with Classic Spread Sheet is $ 28,350.20 We do test for Total 2009 Minor Operated Department as follow: TOTAL 2009 BREAK-EVEN POINT: Fixed Cost: $209,442.71 VC%: 38.711365% Solution on Break-even point of Total 2009 Minor Operated Department as bellow: BE = $209,442.71/(1-38.711365%) BE = $209,442.71/61.288634% BE = $209,442.71/0.61288634 BE = $341,731.73 compare with Classic Spread Sheet is $ 341,731.73






To prove January 2009 Minor Operated Department Result of Classic Spread Sheet Break-even Point: Information we got as follow:

Average Per Guest = $6.33 Sales = $32,854.00 No Of Guest = 5,191 Fixed Cost = $17,453.56 Variable Cost = $12,627.71

Proved:

Variable Cost per Guest = $12,627.71 / 5,161 = $ 2.4326 $6.33Q = $2.4326Q + $17,453.56 + $0 3.8974Q = 17,453.56 Q = 4,478.26 ronded 4,479 Covers compare with Classic Spread Sheet BEP 4,479 Cover You can do test the other months and in Yearly Total with this Equation Method



16. BREAKEVEN CHART FOR MINOR OPERATED DEPARTMENT

Breakeven Chart

(30,000.00)

(20,000.00)

(10,000.00)

-

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

Number Guest of Minor Operated Department

Mon

ey

Fixed Cost 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 17,453.56 Variable Cost - 2,724.53 5,449.06 8,173.59 10,895.69 13,620.22 16,344.75 Operating Surplus (17,453.56) (13,089.58) (8,725.59) (4,361.61) (1.52) 4,362.46 8,726.45 Total Cost 17,453.56 20,178.09 22,902.62 25,627.15 28,349.25 31,073.78 33,798.31 Revenue - 7,088.51 14,177.03 21,265.54 28,347.73 35,436.24 42,524.76

- 1,120 2,240 3,360 4,479 5,599 6,719



Hotel Operation Break-even Point



17. HOTEL OPERATION BREAK-EVEN PINT

To compute Hotel Operation Break-event Point can do just added all Sales Volume Break-even Point or by using Break-even Analysis with Multiple Products as bellow: Example Sales Break-even Point for January – December 2009

Description Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Room Division 152,310.24 150,194.87 166,154.27 153,696.84 145,940.11 144,651.22F & B Division 105,642.86 107,607.96 100,637.10 107,131.59 108,182.42 108,840.61Minor Op. Dept. 28,350.20 27,968.01 28,024.21 28,153.28 28,727.62 28,893.84Total Sales BEP 286,303.30 285,770.84 294,815.58 288,981.71 282,850.15 282,385.67

Description Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Room Division 147,767.33 147,582.94 139,424.27 153,152.19 160,629.89 150,381.28F & B Division 106,591.24 105,277.25 121,015.07 105,012.66 101,658.55 105,492.07Minor Op. Dept. 28,991.15 28,843.51 29,950.43 28,202.48 27,987.56 28,355.14Total Sales BEP 283,349.72 281,703.70 290,389.77 286,367.33 290,276.00 284,228.49

Remember, the hotel operation is unique compare to manufactures or other business and we now about “Break-even Analysis with Multiple Products” is far different under than the above break-even point. Let we try to compute

HOTEL XYZOTEL XYZ Description Room Division F & B Division M.O. D Total

Sales

239,986.00 100.0%

134,835.30 100.0%

32,854.00 100.0%

407,675.30 100.0%

Less Variable Expenses

66,620.81 27.8%

67,316.63 49.9%

12,627.71 38.4%

146,565.15 36.0%

Contribution Margin

173,365.19 72.2%

67,518.67 50.1%

20,226.29 61.6%

261,110.15 64.0%

Less Fixed Expenses

110,028.47

52,900.58

17,453.56

180,382.61

Net Operating Income

80,727.54

Computation of Break-even Point: Fixed Cost / Overall Contribution Margin

180,382.61 / 0.64 = 281,847.83

Different: 286,303.30 – 281,847.83 = 4,455.47 under than calculation



18. CONCLUTION: 18.1 Hotel Operation is unique

The hotel operation is unique not like normal manufactures, there is many departmental profit that can be computed the break-even point. Those departmental profits has different characteristic of operations.

18.2 Computation Break-even Point of Hotel

Because every departmental profit is different in operations also the expenses structures are different, so to calculate the break-even point is better use this example.

18.3 Common Formula used

Common Break-even formula still used to calculate departmental profits, but overall hotel operation will have big different.



GLOSSARY OF TERMS Break-even point the break-even point is the point at which the supplier of a service

or goods has covered all fixed and variable costs, to that point. After that point, the supplier can begin to make a profit, because the contribution is now to profit and not to fixed costs. For more detail see the toolkit on developing a financing strategy.

Contribution Margin A cost accounting concept that allows a company to determine the

profitability of individual products. It is calculated as follows: Product Revenue - Product Variable Costs Product Revenue The phrase "contribution margin" can also refer to a per unit measure of a product's gross operating margin, calculated simply as the product's price minus its total variable costs..

Payroll dependent upon usage, can mean a. the total amount of money

paid in wages; b. a list of employees and their salaries; or, c. the department that determines the amounts of wage or salary due to each employee.

Consolidated Budget is the budget that accounts for all operating accounts of a parent

and all subsidiaries presented. Fixed Cost is operating expenses that are incurred to provide facilities and

organization that are kept in readiness to do business without regard to actual volumes of production and sales. Fixed costs remain relatively constant until changed by managerial decision. Within general limits they do not vary with business volume. Examples of fixed costs consist of rent, property taxes, and interest expense.

Variable Cost are those costs associated with production that changes directly

with the amount of production, e.g., the direct material or labour required to complete the build or manufacturing of a product.

End of Best Practice of Hotel Room Division Departmental Profit See you for Best Practice of Hotel F & B Division Departmental Profit

break even point computation for hotel

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