BIZ201 Crystal Hotel Case Study - Assignment Solution

Introduction

The objective of any organization is to maximize profit, the survival of a firm is dependent upon inflow of resources at a bare minimum of the outflows, analysis of such decisions helps allocate resources in an effective manner to obtain the desired result for the organization, the internal accounting system which serves an essential purpose for the organization which is to provide the knowledge for planning and making decisions on the project (Zimmerman, 2010). Crystal Hotel is planning to renovate and refurbish the hotel and open a Wellness Center on the rooftop, an analysis was taken upon to conclude whether or not this project will be beneficial in improving the overall image of the hotel and bringing out additional customers to it. The Wellness Center project and the options presented are to be analyzed to obtain the desired result for the success of the project. The first analysis to be done is of either to purchase equipment or to have it on a rental basis (yearly, half-yearly, or quarterly) with a maximum budget of $51,000. Secondly, the idea of membership for external clients is to be explored followed by the analysis of promotional activity for the opening of the wellness center and for boosting the occupancy rate of the hotel. This analysis will help evaluate the importance of financial data like accounting concepts, costing techniques, budgeting techniques, and capital budgeting techniques in assisting the business for decision making.

Sales and Marketing Department

The Sales and Marketing department is overseen by The General Manager like many other departments, with Sales which is the lifeblood of any organization and marketing which assist sales by promoting the business and is involved in creating an efficient promotional budget. It is primarily the most important function in an organization as other functions are restricted to support and involved in the process of saving money whereas sales and marketing are involved in the inflow of the resources by the expansion of the business. The recent decision of the management to renovate and refurbish has given the opportunity to the sales and marketing team to enhance the growth of the business by incorporating new ideas and executing them to obtain the desired result of the expansion of the clientele and business opportunity. The wellness project which plans to build a small gym on the rooftop some basic business decisions are to be taken after analysis.

Equipment

For the small gym to operate there is a requirement of (4) Treadmill, (3) Elliptical Trainer, (5) Exercise Bike, and (2) Rowing Machine. To make a decision to rent or buy the equipment is to be done in an analysis based on the fundamental law of finance that a dollar today is worth more than a dollar tomorrow. The opportunity cost of both alternatives for acquiring resources can be analyzed to understand the safest option for the organization to opt for terms of the cost of the whole life equipment (Zimmerman, 2010).  The organization invests in an asset to obtain benefits from its service over time, the decision is taken whichever alternate has a lower amount of acquisition for the life of equipment if both the options provide similar services (Johnson & Lewellen, 1972). The given budget is $51,000 and the analysis is to be done for the cost period of three years which is the life of the equipment, In the buying option the cost of all the machines is $58,457 where the residual value is 20% of the cost which will be received after three years $11,691.4 though this may be the amount which we will receive at that given time, the value of it in terms of today is not a true representation we will discount the residual value by 7% bringing the residual value at $9,543.66 which is what it would be worth today. Adding the servicing cost which is a total of $1,753.71, bringing the total cost of all equipment over a period of three years to $50,667.05 which falls under the desired budget. Counter to this option of buying the equipment there are multiple rental options which all increase by 10% annually and are to be paid at the beginning of the period, the rental option of 3 months which has the highest cost over the period of three years amounting to $74,855, the rental option of 6 months amounts up to $59,306, the lowest cost option is the annual rental option which has a total amount of equipment at $51,883.85. The buying option is a better option for an organization as the assets are reflected as resources whereas leasing them would increase the expenses and have a negative impact on the financial books. The advantage of leasing a piece of equipment is that maintenance and residual life are hassles for lessee whereas in the buying option all responsibilities are on the organization and it could also be left with an obsolescence product before its life cycle ends apart from these general advantages and disadvantages the most essential factor is the cost of it. The analysis shows that the lowest cost for treadmill and rowing machines comes from the buying option which is $20,999.39 and $4,725.47 respectively, Whereas, Elliptical trainer and Exercise bikes would be much cheaper if the option of annual rent is taken amounting to $9,056.12 and 13,509.47 respectively saving the organization $2376.60 if all the lowest option are to be taken as compared to only buying option Bringing a total cost of equipment to be $48,290.45 over the period of three years. To obtain all the desired equipment under the budget and saving up to $2,709.55 from the budget reflects an efficient and effective decision-making process.