Costing and Budgeting Techniques to Business - Accounting and Finance Assignment Help

Assignment Task:

Learning Outcomes

a) Explain and evaluate the role and importance of financial information in business decision making 

b) Apply relevant accounting concepts to simple business scenarios 

d) Apply basic costing and budgeting techniques to business decision making 

e) Apply capital budgeting techniques to capital investment scenarios 

Context: 

This assessment is aimed at consolidating knowledge from Modules 1-6. By prescribing this assessment, you are able to reflect on your understanding of the importance financial information in business decision making and be able to apply costing and capital budgeting techniques to business scenarios like given below.

Business Report The owners of the Crystal Hotel are planning to renovate and refurbish the hotel. A part of the redevelopment plan is to build a Wellness Centre on the rooftop of the hotel. The Sales and Marketing Manager volunteered to help with this project. He is a strong believer that it would bring the hotel up to the next level and that it would attract additional customers to the hotel. 

Due to the location of the hotel being within proximity to the business district, he believes that the Wellness Centre should be opened to external clients as well. He suggests employing a full time, in-house trainer and a part-time dietician. He believes selling monthly membership including training sessions and dietary advice will attract additional clients who may then promote the hotel to their employers for accommodation and other business-related services. 

The marketing manager wants to be well prepared to support the Wellness Centre project and needs help with few tasks from your team. 

TASK 1 

As part of the Wellness Centre Project, the plan is to build a small gym on the rooftop of the hotel. You have been appointed to help the Sales and Marketing manager to make decision whether to rent or buy specific equipment items. The required items are included in Appendix 1 together with costing information. The budget for the required equipment is $40,000 for the life of the equipment. 

Regarding the buying of the equipment, the useful life is predicted to be 3 years after which replacement is needed. At the end of its useful life, it is expected to be sold for the residual value of 20% of its original cost. A servicing contract will be drawn up with a company to take care of the equipment. Servicing will cost the hotel additional $500 every year over the period of its useful life. This is to be paid separately as one lump sum at the beginning of the term and will last 3 years. 

For the renting option, choose the one that is the most beneficial for the business. The rent is expected to rise by 10% each year. The rent is paid at the beginning of each period. Servicing of the equipment is included in the rent. 

REQUIRED 

The manager would like to know whether it would be better for the Hotel to buy the required equipment or to rent it. Explore both options and make a recommendation. Consider the time value of money at a discount rate of 5%. Include advantages and disadvantages of each option and justify your choice. 

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