costing activity report - red group

8/11/2019 Costing Activity Report - Red Group

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Costing Activity Report

Hanoi, December 13, 2010

From: Red Group

To: Miss Thuy and Miss Hue, Interated !usiness "ecturers

#ub$ect: Financia% estimations and recommendations on prices o& Fair'ie( Manor apartments

Abstract

This report in&orms the resu%t o& &inancia% ca%cu%ation &or Fair'ie( Manor ) a ne( timeshare

comp%e*+ It inc%udes the process o& di'idin costs accordin to acti'ities, pricin, (orin out

pro&it and i'in suestions to treat renta% apartments+

Table of contents

I+ Introduction1+ Timeshare industry

2+ Fair'ie( Manor

II+ Methodo%oyIII+ Financia% -stimation and Recommendation

1+ Fi*ed costs

2+ .ee%y 'ariab%e cost

3+ /rice and breae'en points

+ Ma*imum pro&it+ .ee%y renta% apartments

I+ onc%usion+ Re&erences

I. Introduction

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1. Timeshare industry

Timeshare is a type o& tradin rea% estate that the usin time o& properties is di'ided into

parts in order to se%% to di&&erent peop%e+ These mu%tip%e parties ho%d the rihts to use the

properties toether+ The buyers ha'e the o(nership o'er these properties in a certain period o&

time 4usua%%y one (ee and a%most a%(ays the same time5 each year and this o(nership (i%% %ast

&rom 20 to 30 years (hi%e the buyers sti%% pay the current price+

The rea%ties are usua%%y desined as com&ortab%e house that are &itted (ith a%% modern

con'eniences &or &ami%ies6 dai%y %i'es+ These properties are di'ersi&ied in &orms+ They can be

hote% rooms, resorts, apartments in tourist area and the most hih7rade &orm is 'i%%as+

The specia% &eature o& this tradin type is that the buyers can e*chane the riht to use

their properties amon timeshare o(ners+ It means i& the buyers &ind it bored to stay in the same

p%ace e'ery year, they can reister to 'isit and %i'e in others6 apartments and other peop%e (i%% use

their properties in return+ It he%ps peop%e tra'e% a%% around the (or%d more easi%y and

economica%%y+

2. Fairview Manor

Fair'ie( Manor is a ne( timeshare and %eisure comp%e* (hich is de'e%oped by 8ni'ersa%

Maretin /" ) a company (ors in the &ie%d o& internationa% timeshare maretin+ /" isoin to o&&er a number o& ho%iday apartments &or sa%e, but they ha'e not decided the prices yet+

Fair'ie( Manor is %ocated in the .est ountry, -n%and (here tourism taes an

important ro%e 4contributin 9,2; mi%%ion to the reion


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This report (i%% re'ea% the &inancia% ca%cu%ations and recommendations (hich are needed

to assist the (or o& pricin apartments+ There&ore, the company can decide a &air price per

apartment per (ee be&ore se%%in them into the maret+

II. Methodology

In order to mae the report c%ear and easy to &o%%o(, it is necessary to indicate (hich

method is used to orient the process o& ca%cu%ation+ !ecause the main re>uirement o& this report

is to distribute the costs %oica%%y, (e decided to use ?acti'ity7based costin@ approach+

=ne o& the reasons is that Fair'ie( Manor comp%e* is so%d in modern commercia% maret

(hich is hih%y competiti'e+ ustomers no( come to the products that satis&y their o(n

re>uirement, so companies need to manae the costs e&&ecti'e%y to i'e out a reasonab%e price

%e'e%+ Moreo'er, the o'erheads are hih, especia%%y in depreciation, so the traditiona% (ay o&

costin is not suitab%e anymore+ !ased on these conditions, (e chose to use ne( costin

approach+

In addition, this pro$ect &ocuses on the costs to bui%d up and maintain the comp%e*, not

bein about pre or post production phase, so the ?tota% %i&e7cyc%e costin@ approach is not use&u%+

!asica%%y, ?acti'ity7based costin@ is the most suitab%e approach to app%y+

Acti'ity7based costin is a costin mode% that identi&ies acti'ities in an oraniBation and

assins the costs o& each acti'ity resource to a%% products and ser'ices accordin to the actua%

consumption by each+ It assins more indirect costs 4o'erheads5 into direct costs+ In this

approach, the o'erheads do not $ust occur but are caused by acti'ities+ An o'erhead cost poo% is

estab%ished &or each cost dri'er, (hich means they are %ined to a particu%ar acti'ity+

!y &o%%o(in this approach, (e can precise%y estimate the costs o& each apartment so that

(e can a%so identi&y and e%iminate those that are unpro&itab%e to %o(er the prices o& those that are

o'erpriced+ Most o& these ca%cu%ations are correct+

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III. Financial Estimation and Recommendation

1. Fied costs

Assumin that the costs &or bui%din and maintainin e'ery room are e>ua%, then a%% &i*ed

costs (i%% be apportioned on the basic o& tota% rooms+

Fied cost !"er year#

!ui%din cost depreciated o'er 30 years 4per year5 495 10,000

Depreciation o& Furniture C Fittins 4per year5 495 100,000

Administration osts per year 495 200,000

Maintenance osts per year 495 10,000

Gymnasium C Recreation Faci%ities per year 495 2,000

Total !$# %2&'(((

#tudio 1 !edroom 2 !edroom Tota%

umber o& roomsEapartment 3

umber o& apartments 10

Tota% number o& rooms 1; 21 0 2

Fied costs "er year !$# )*'2%&.)1 +&,'1*).%- 12-'&&1 %2&'(((

Fied costs over )( years !$# 1'1+-',&,.1* 1)'--&'&1(.2( )*2%&)(.%1 1*-&((((

2. ee/ly variable cost

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0ariable costs "er room

%eanin materia%s per room per (ee 495 0+

%eanin cost per room per (ee 495 10+

-%ectrica% cost per room per (ee 4a'erae5 495 3+

Total !$# 1+.+

ariab%e costs per apartment ariab%e costs per room * umber o& rooms ariab%e costs per

occupant * Ma*imum number o& occupants

#tudio 1 !edroom 2 !edroom

umber o& roomsEapartment 3

ariab%e cost per room per (ee 495 1+ 1+ 1+

Ma*imum number o& occupants 2

ariab%e costs per occupant per (ee 495 2+ 2+ 2+

0ariable costs "er a"artment !$# +*.2 %-.% 1(1.+

3. rice and brea/even "oints

a# rice

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!ased on the data about prices o& competitors &or simi%ar apartments and the ana%ysis o&

maret demand as (e%% as the comp%e* itse%&, (e brin out the prices &or Fair'ie( Manor

apartments+ Genera%%y, they are cheaper than the ones o& competitors to impu%se re'enue+


.ee%y price 495 21 7 23 2 7 2 3 7 2

=ne7o&& price 495 J0 7 J1J0 JJJ0 7 ;J0 11J0 7 12;J0

First%y, there are on%y a &e( #tudio apartments and customers (i%% not ha'e many choices

i& they decide to buy this type, so the price is not necessary to be too %o( to attract buyers+ Theprice rane is narro( and $ust a %itt%e cheaper than competitors6+

!esides, =ne !edroom apartment (hich is the main products o& the company has the

tota% number o& + This is because peop%e6s demand &or this &orm is much hiher than the rest+

Then, the competition amon businesses to se%% these apartments is stroner+ There&ore, (e %o(er

=ne !edroom price so that it (i%% hih%y maretab%e+ This price (i%% be suitab%e &or many peop%e,

especia%%y coup%es (ho (ant to spend the ho%iday toether+ In addition, the rane o& price is

much (ider than other types, so (e can ad$ust it in the most &%e*ib%e (ay (hen peop%e6s demands

are chaned accordin to season+

Fina%%y, T(o !edroom apartments are con'enient and economica% &or a roup o&

customers (ho (ants to o on a ho%iday toether+ /otentia% customers &or this &orm are &ami%ies

(ho ha'e &rom to members+ !uyin a T(o !edroom apartment is much cheaper than buyin

t(o =ne !edroom apartments, e'en than t(o #tudio ones+ Ho(e'er, the >uantity o& these

apartments is not bi (hi%e the demand is hih+ For these reasons, the price &or this type is

e>ui'a%ent to competitors6 in norma% (ees and hiher in specia% occasions+

b# rea/even "oints

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"o(er

price

8pper

price

"o(er

price

8pper

price

"o(er

price

8pper

price

Fi*ed costs 3;,2+31 ,1;3+J 12J,1

.ee%y 'ariab%e costs ;+2 J+ 101+

.ee%y price 495 21 23 2 2 3 2

rea/even "oint!a"artment wee/#

22+ 2(1 2),, 1,*+ +2, )*,

+. Maimum "rofit

Tota% apartment (ees &or sa%e umber o& apartments * 2

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umber o& apartments 10

Tota% apartment (ees 312 2,;0; 20

Ma*imum pro&it /rice * 4Tota% (ee &or sa%e ) !reae'en point5


"o(er

price

8pper

price

"o(er

price

8pper

price

"o(er

price

8pper

price

/rice 495 21 23 2 2 3 2

Tota% (ees &or sa%e 312 312 2,;0; 2,;0; 20 20

!reae'en point 22 201 2,3 1,; 2 3;

Maimum "rofit !$# 1,'2-2 2%'&2, 1(&',)1 2+%')-% )%')(, &%'1,,

&. ee/ly rental a"artments

a# 3ifference between buying and renting

Buying

!uyers ha'e the o(nership in a (ee each year o'er 30 years+ They can pay (ee%y

price &or their apartments e'ery years or pay ?one7o&&@ price in the year they buy+ Ho(e'er,

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thouh they choose the &irst or second (ay, the price is &i*ed and they do not need to (orry about

the increase o& price (hen the maret oes up+.hen they buy timeshare apartments, these apartments is counted as their assets and

appeared at their pri'ate &inancia% report+ This a%so means they ha'e to pay more e*penses each

year in rea% estate ta*es and maintenance costs+

Renting

Rentin is more &%e*ib%e than buyin because peop%e do not ha'e responsibi%ity (ith the

apartments they rent and they a%so do not need to consider about any %on7term spendin+ The

transaction can tae p%ace >uic%y+ Renters do not ha'e the o(nership o& these apartments and

o(ners sti%% ha'e to pay rea% estate ta*es by themse%'es+

Ho(e'er, the price &or rentin is not &i*ed+ It can be chaned accordin to the the maret

demand and the de'e%opment o& the economy+ !ecause o& the increase in property 'a%ue and

%i'in standard, the hire is usua%%y risen e'ery year+

b# 4riteria for "ricing the hire

Season

/eop%e ha'e di&&erent demands in di&&erent seasons, so the price shou%d be suitab%e to

ha'e the best resu%t+ 8sua%%y peop%e ha'e hih interest in tourism in three situations+ The &irst is

that they ha'e the days o&&, the second is that they (ant to ce%ebrate a specia% ho%iday and the

third is that they (ant to tae part in a %oca% &esti'a% in a particu%ar area+ Accordin to them, the

price &or rentin ho%iday apartment (i%% be more e*pensi'e in the summer, annua% occasions %ie

hristmas and the (ee that areas nearby has &amous &esti'a%s+

In norma% (ees, i& the hire is hih, there (i%% be no customers+ Ho(e'er, i& the company

does not chane the price in the time that peop%e are (i%%in to pay money, it (i%% %ose a bi

pro&it+

Costs

The price needs to co'er a%% the costs as (e%% as mae pro&it+ !ecause the company has to

pay rea% estate ta*es &or renta% apartments, the e*penses (i%% increase+ A%so to eep the business

continue, they must spend both money and e&&ort, (hich is re>uired more than $ust se%%in

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apartments+ To ba%ance these thins, the hire must be hiher than the price &or buyin the same

ind o& apartment+

Profit margin company wants to achieve

Dependin on the &inancia% oa% o& the company, the price can be chaned to reach the

desirous %e'e%+ Ho(e'er, this number sti%% has to be reasonab%e+ I& the hire is too hih, no

customers (ant to sin the contract (ith the company+

Change of market and demand

The chanes in society and economy (i%% a&&ect direct%y customers6 demands,

re>uirements and acceptance+ In crisis time peop%e (i%% not spend much in thins %ie this and the

company (i%% need to %o(er the price hopin it (i%% in'ite more customers+ !y contrast, (hen

e'erythin is ood 7 the maret oes up and so does %i'in standard ) peop%e can accept that the

ser'ice &ee increase a%on (ith the >ua%ity, then the company sti%% ha'e many customers thouh

the hire they chare can be hih+

c# 5umber of rental a"artments

The more renta% apartments company retains, the more e*penses they need to pay+ ot

on%y the rea% estate ta*es but a%so the &ees to manae the (or o& hirin need to be considered+

They need to eep ad'ertisin their apartments &or ne( customers, emp%oyin the sta&& to sin

rentin contracts and so on (hi%e the apartments that be%on to buyers do not re>uire these

(ors+

Ho(e'er, property 'a%ue a%so ro(s cease%ess%y+ =n the one hand, the ro( in the (or%d

popu%ation %eads to the %ac o& %and a&&ectin %and price so much+ =n the other hand, ser'ice

sector is accounted &or bier and bier proportion in the economy, (hich opens an opportunity

that the company can chare their hire much hiher+ !ecause the apartments can increase in both

its o(n 'a%ue and the pro&itabi%ity by rentin, retainin them (i%% ha'e positi'e e&&ects in %on7

term+

A&ter thinin care&u%%y about a%% aspects, (e ha'e &ina% decision in ho( many apartments

is &or sa%e and &or hire+

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For sa%e 0 J

For hire 2 1 3

Tota% 10

d# rice

!ecause the %arer the %and is, the more ta*es company has to pay, the di&&erences

bet(een hire and buyin price (i%% be chaned in re%ationship (ith the type o& apartment+

Dependin on abo'e &actors, (e decide that the hire (i%% be 910 more e*pensi'e than (ee%y

price &or se%%in (ith #tudio apartments, 91 (ith =ne !edroom apartments and 92 (ith the %ast

ones+ Fo%%o(in is the detai%ed price %ist+

Date =ccasion #core


For

sa%e

For

hire

For

sa%e

For

hire

For

sa%e

For

hire

Kan 0 7 Mar 21 0 21 22 2 2J 3 2

Mar 22 7 Apr 2 -aster 1 22 23 2J 20 13 3;

Apr 2 7 May 31 0 21 22 2 2J 3 2

Kun 01 7 Kun 23 #ummer 2 230 20 2; 300 20

Kun 2 7 Kun 31G%astonbury Festi'a% in

.est ountry3 23 2 2 31 2

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Ku% 01 7 Au 31 #ummer 2 230 20 2; 300 20

#ep 01 7 =ct 31 0 21 22 2 2J 3 2

o' 01 7 o' 0 .est ountry arni'a% 3 23 2 2 31 2

o' 0 7 Dec 1 0 21 22 2 2J 3 2

Dec 1 7 Kan 0.inter ho%iday,hristmas C e( Lear

3 23 2 2 31 2

The score is used to e'a%uate the demand %e'e% in di&&erent time period o& year+ Hihest

score is 3 (hich re&ers to the period (ith stronest demand and the %o(est score is 0 7 no specia%

&actor to attract customer+

I0. 4onclusion

Financia% data are ca%cu%ated based on many aspects in&%uencin the (or o& pricin in

order to persuade peop%e to become /"6s customers in timeshare maret+ Apartments &or sa%e

and &or hire are c%ari&ied c%ear%y as %on as e*p%ained care&u%%y+ These ca%cu%ations and

recommendations can be used by the Maretin Director o& /" to i'e the &ina% decision about

apartments6 price+

0. References

1+ Do Thi 4March 31, 20105, Timeshare New property service, Retrie'ed &rom

http:EE(((+pinde*+'nEaentEinde*+phpaid2;20Coptionb%oCtas'ie(Cid1J1 on

March 31, 2010

2+ Du%ichbui, Vacation Ownership, Retrie'ed &rom http:EE(((+du%ichbui+orE2010E10Eso7

huu7y7nhi7'acation7o(nership+htm%3+ .iipedia 4December 3, 20105, Timeshare, Retrie'ed &rom

http:EEen+(iipedia+orE(iiETimeshareon December 3, 2010+ Nenh 4Kune J, 2005, Timeshare, Retrie'ed &rom

http:EEinh+comE&orum1E'ie(topic+php

p3Csidde312dadac&&ab;c3ce12don Kune J, 200

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http://www.pindex.vn/agent/index.php?aid=2820&option=blog&task=view&id=5171http://www.dulichbui.org/2010/10/so-huu-ky-nghi-vacation-ownership.htmlhttp://www.dulichbui.org/2010/10/so-huu-ky-nghi-vacation-ownership.htmlhttp://en.wikipedia.org/wiki/Timesharehttp://en.wikipedia.org/wiki/Timesharehttp://kinh5.com/forum1/viewtopic.php?p=93&sid=de3544129d59a56dacff6ab8c3ce12d5http://kinh5.com/forum1/viewtopic.php?p=93&sid=de3544129d59a56dacff6ab8c3ce12d5http://kinh5.com/forum1/viewtopic.php?p=93&sid=de3544129d59a56dacff6ab8c3ce12d5http://www.pindex.vn/agent/index.php?aid=2820&option=blog&task=view&id=5171http://www.dulichbui.org/2010/10/so-huu-ky-nghi-vacation-ownership.htmlhttp://www.dulichbui.org/2010/10/so-huu-ky-nghi-vacation-ownership.htmlhttp://en.wikipedia.org/wiki/Timesharehttp://kinh5.com/forum1/viewtopic.php?p=93&sid=de3544129d59a56dacff6ab8c3ce12d5http://kinh5.com/forum1/viewtopic.php?p=93&sid=de3544129d59a56dacff6ab8c3ce12d5


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+ uyen Thanh u 4Auust 3, 2005, Timeshare, Retrie'ed &rom

http:EE'in'est+(ordpress+comEon Auust 3, 200+ .iipedia 4December , 20105, South est !ng"and, Retrie'ed &rom

http:EEen+(iipedia+orE(iiE#outhO.estO-n%andon December , 2010

J+ .iipedia 4o'ember 1, 20105, est Country, Retrie'ed &romhttp:EEen+(iipedia+orE(iiE.estOountryon o'ember 1, 2010

;+ .iipedia 4December 12, 20105, #"aston$ury %estiva", Retrie'ed &rom

http:EEen+(iipedia+orE(iiEG%astonburyOFesti'a%on December 12, 2010

+ .iipedia 4o'ember 2, 20105, est Country Carniva", Retrie'ed &rom

http:EEen+(iipedia+orE(iiE.estOountryOarni'a%on o'ember 2, 2010

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http://vinvest.wordpress.com/http://en.wikipedia.org/wiki/South_West_Englandhttp://en.wikipedia.org/wiki/West_Countryhttp://en.wikipedia.org/wiki/Glastonbury_Festivalhttp://en.wikipedia.org/wiki/West_Country_Carnivalhttp://vinvest.wordpress.com/http://en.wikipedia.org/wiki/South_West_Englandhttp://en.wikipedia.org/wiki/West_Countryhttp://en.wikipedia.org/wiki/Glastonbury_Festivalhttp://en.wikipedia.org/wiki/West_Country_Carnival

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