Analyze Cost and Investment Decisions
Choice Hotels is interested in bolstering their assets and improving their costing model to account for these assets. Choice Hotels has been building their own guest rooms and selling them to their franchise owners. The company allocates overhead costs equally to each guest room and prices them to achieve a greater profit on the higher-priced rooms. Choice Hotels is concerned that this traditional costing model may not be accurately assigning costs. For example, the selling price of one of its guest rooms, “Presidential Suite,” may not be covering its true cost. You and your team will need to apply activity-based costing (ABC) to advise Choice Hotels on resolving the company’s costing issue with the Presidential Suite guest room.
You need to understand the concepts of production cost allocation, and breakeven to compare costing models. Two cost allocation methods of production are under consideration by Choice Hotels. Frank needs your help in determining if overhead cost allocation (Choice’s traditional model) or ABC (a new model) is better for their business.
Using the same Project 3 Excel Workbook (see attached worksheet to complete) you used in Step 1, complete the Cost and Investing worksheet. The worksheet contains information that will aid in comparing the cost allocation methods for building guest rooms for Choice Hotels’ franchise owners.
Step 3:
Complete a Budget and Forecast
Frank recently informed you that Choice Hotels also needs assistance in creating next year’s budget and developing revenue forecasts. Choice Hotels recently acquired a new hotel brand. This recent acquisition needs to be taken into consideration as your team develops the forecast. Choice Hotels recently held a press conference where the company disclosed their full-year guidance. Your team will need to use this information to develop their budget and forecast.
Using the same Project 3 Excel Workbook your team will use in Steps 2 and 3, complete the Budget and Forecast worksheet.
Step 4 (Write a Discussion):
Discuss Strategy
Discussion with Colleagues Earlier, Frank mentioned you would need to attend a meeting with other finance and accounting analysts at MCS to discuss the differences in strategy between Choice Hotels and Marriott. Both companies have a BBB debt rating from Standard & Poor’s. This is the lowest investment grade rating and indicates that both companies have been aggressive with growth, finance, and Treasury Stock purchases.
• Discuss the differences in strategy related to business growth, finance, and Treasury Stock purchases.
• Discuss the similarities in strategy.
• Discuss any strategy recommendations for Choice Hotels’ management
