Tca 321 Final

Front 1

What is price elasticity of demand and how does it work?

Back 1

It provides a means for measuring how sensitive demand is to changes in price.

If elasticity of demand exceeds 1, the demand is said to be elastic.

If elasticity of demand is less than 1, demand is said to be inelastic.

Front 2

What is the informal pricing approach "competitive shopping?"

Back 2

Price products based on what competition prices. If competition charges $80 a night then managers set their price to that too.

Front 3

What is the informal pricing approach "Intuition?"

Back 3

Based on what manager feels the guest is willing to pay. However, intuition ignores cost and may fail to generate a profit.

Front 4

What is the informal pricing approach "Psychological?"

Back 4

Prices established on the basis of what the guest "expects" to pay. Used mostly by luxury resorts where guests think "the more paid, the better the product." However, ignores cost and may fail to generate a profit.

Front 5

What is the informal pricing approach "trial-and-error?"

Back 5

First set a price, monitor guests' reactions, and then adjust the price based on reactions.

Problems may include monitoring guests reactions may take longer than necessary, frequent changes may result in price confusion among guests, many outside uncontrollable factors that affect guests' purchases, and it fails to consider costs

Front 6

If food cost percentage was 40%, what would be the multiple uses using the markup approach?

Back 6

1/.4 = 2.5

Front 7

What is ingredient markup and prime ingredient markup?

Back 7

Ingredient markup considers all product costs and prime ingredient markup considers only the cost of the major ingredient.

Front 8

If the desired food cost percentage is 30% and $3.25 ingredient costs, what is the price of dinner?

Back 8

3.25/.3 = 10.83

Front 9

There is a 300 room hotel, project cost of $26m, project value to date $50m, ADR competition $120, using the 1 in 1000 approach what is ADR?

Back 9

(26m/300)/1000 = 86.67

Front 10

How do you measure revenue management yield?

Back 10

Revenue management yield is the process of understanding, anticipating, and reacting to buying trends.

Revenue management requires managers to analyze the changing nature of the marketplace and the operation on a moment's notice. This is done by constantly reviewing the status of demand for the hotel and the available supply of rooms.

Front 11

How are menu items evaluated?

Back 11

They are classified by stars, plow horses, puzzles, or dogs.

Front 12

What are stars?

Back 12

They are high in profitability and high in popularity. You must maintain rigid specifications for quality, quantity, and presentation of all star items.

Front 13

What are plow horses?

Back 13

They are low in profitability but high in popularity. These items are often an important reason for a restaurant's popularity.

Front 14

What are puzzles?

Back 14

They are high in profitability but low in popularity. Take them off the menu, particularly if a puzzle is low in popularity, requires costly or additional inventory, has poor shelf life, requires skilled or labor intensive prep, and inconsistent quality.

Front 15

What are dogs?

Back 15

Low in profitability, low in popularity. Eliminate all dog items if possible. Food service operators are often intimidated by influential guests to carry a dog item.

Front 16

What is integrated pricing?

Back 16

Pricing for all departments are established so they are optimal for the whole establishment.

For example, a pool manager could charge a guest for use of the pool, but then that guest would just stay at a different hotel where the pool is no additional charge. Therefore all revenue is lost from that guest.

Front 17

If the ADR is $40, 500 rooms sold, multiple occupancy 30%, double rooms priced 10$ higher than single, what is price of double?

Back 17

Doubles = .3 x 500 = 150

Singles = .7 x 500 = 350

350x + 150(x + 10) = $40(500)

500x + 1500 = 20,000

500x = 18,500

x = 37

x + 10 = 47

Front 18

What is the hubbart approach and how do you calculate it?

Back 18

A cost approach using a bottom-up approach to pricing rooms.

1. Calculate the desired profit by multiplying the desired ROI by the owners' investment.

2. Calculate pretax profits by dividing desired(step 1) profit by 1 minus tax rate

3. Calculate interest expense, depreciation, amortization, non-operating expenses, and management fees.

4. Calculate undistributed operating expenses. This calculation includes estimating administrative and general, information and telecommunication systems, sales and marketing, property orientation and maintenance, and energy costs.

5. Estimate non-room operated department income or losses; that is food and beverage department income, gift shop income, and so forth.

6. Calculate required rooms department income. The sum of pretax profits(step 2), interest expense, depreciation, amortization, insurance, rent, property taxes, and management fees(step 3), undistributed operating expenses(step 4), and other operated department losses less other operated department income(step 5) equals the required rooms department income.

7. Determine the rooms department revenue. The required rooms department income(step 6), plus rooms department direct expenses of payroll and related expenses plus other direct expenses equals rooms department revenue.

8. Calculate the average room rate by dividing rooms department revenue(step 7) by rooms expected to be sold.

Front 19

What is the trend pattern?

Back 19

A projection of the long-run estimate of the activity being evaluated. Often shown for several years.

Front 20

What is the seasonal pattern?

Back 20

When a series of data fluctuates over time according to some pattern. Business may vary regularly by season of the year, by month, by week, or even by days of the week.

Front 21

What is the cyclical pattern?

Back 21

Movements about a trend line that generally occur over a period of more than one year. Similar to seasonal pattern except longer

Front 22

What is the scatter pattern?

Back 22

Random variation. They occur for reasons that the hospitality manager cannot anticipate regardless of the forecasting method.

Front 23

What is econometrics?

Back 23

A system of interdependent regression equations describing one or more economic sectors.

Front 24

What is moving average?

Back 24

Calculated by activity in previous n periods/n

N is number of periods n the moving average

Front 25

What is exponential smoothing?

Back 25

Forecasting method that uses a smoothing constant and recent actual and forecasted activity to estimate future activity. Essentially says "if the forecast was too high, reduce it next period; if forecast was too low, higher it next period."

Front 26

What is market research?

Back 26

Gathering information from potential customers regarding a new product or service.

Front 27

What is the jury of executive opinion?

Back 27

Top executives jointly prepare forecasts

Front 28

What is the time series approach?

Back 28

Always assume that a pattern recurs over time which, when identified, may be used to forecast values for any subsequent time period.

Front 29

What is the most important factor when selecting forecasting method for a hotel?

Back 29

The two most important are the method's effectiveness in providing usable projections from available data and the cost of using the method.

Front 30

What are operation budgets?

Back 30

The revenue and expense budget, because it includes management's plans for generating revenues and incurring expenses for a given period.

Front 31

What is flexible budgeting?(also called static)

Back 31

Alternative approach to budget for several different levels of activity.

For example, a hotel may budget at three paid occupancy levels of 69, 71, and 73, even though it believes that the level of activity is likeliest to be at 71.

Front 32

What is incremental budgeting?

Back 32

Historical financial information often serves as the foundation on which managers build their revenue forecasts.

For example, from 2013 to 2014, the amount of revenue increased by 10% each year. Therefore in the future, the revenue in 2015 would increase by 10%.

Front 33

What is zero based budgeting?

Back 33

This requires all expenses to be justified. It means the assumption is that each department starts with zero dollars and must justify all budgeted amounts.

Front 34

If budgeted revenue is 15,000 and actual revenue is 10,000, what is the percentage variance and is favorable or unfavorable?

Back 34

5,000/15,000 = 33%. It is unfavorable.

Revenues: actual exceed budgets - favorable

budget exceed actual - unfavorable

Expenses: budget exceed actual - favorable

actual exceed budget - unfavorable

Front 35

Which of the following doesn't affect labor expense variance?

Back 35

Cost of good sold variance and revenue variance.