CHAPTER ONE
Introduction
1.1 Background to the Study
Hospitality
industry forms the core basis for the development of a country. In Kaduna state
serves as a cornerstone in providing comfort for those who patronize it and
safety for travellers and tourism. ‘’The nature and structure of the hotel
industry in Kaduna state could be traced back many years to the era of domestic
hospitality, This period witness the humble beginning of domestic accommodation
and hospitality, lodging of travellers and visitors from one geographical area
to another for one reason of the other, had to travel to other places prior to
that developments to host them’’.
Historically,
two cost accounting systems, job order costing and process costing have been
used to cost product and services and many companies continue to use these
traditional costing systems (Garrison and Noreen, 2000). Since the mid–1980s,
however, companies have been adopting activity based costing (ABC) for products
and customer costing (Briedley et all, 2001). Traditional costing systems use
actual departments or cost centres for accumulating and redistributing costs. Activity
based costing (ABC) systems, instead of using cost centres for accumulating
costs, use activities; that is, rather than asking how to allocate a service
department expense to a production department, the ABC system designer asks
what costing are being performed by the service department’s resources. The
resource expenses are assigned to activities based on how much of them are
required or used to perform activities (Atkinson et all. 2001). Both
traditional and costing systems vary in their level of sophistication but, as a
general rule, traditional systems tend to be simplistic (are inexpensive to
operate, make extensive use of arbitrary cost allocations, have a low level of
accuracy, high cost or errors, etc) whereas costing systems tend to be
sophisticated (are expensive to operate, make extensive use of cost and effect
cost allocations, have a high level of accuracy, low cost of errors, etc)
(Drury, 2002). Kaplan and Cooper (1998) suggest that service companies are
ideal candidates for ABC even more than manufacturing companies. Their
justification for this statement is that most of the costs in services
organizations are fixed and direct. Kock (1995), states that ABC is suitable
for market–oriented sectors. A UK survey by Drury and Tayles (2000) reported
that 51% of the financial and services organizations surveyed, compared to 15%
of manufacturing organizations, have implemented ABC. Fay at all.,(1971) show
the possible use of traditional costing systems in the hospitality services
industry. None and Griffin (1997) propose that application of costing is the
most effective and accurate costing method for Customer Profitability Analysis
(CPA) in a hotel environment. Dunn and Brooks (1990) and Noone and Griffin
(1999) document the implementation of CPA using ABC. However, the use of costing
method in the hotel industry is minimal (Tai, 2000) with an informal survey by
Graham (quoted in Tai, 2000) identifying no hotels in kaduna to have adopted
this approach. Tai interviewed a range of industry personnel in order to
identify the reasons for this and found that, although there was considerable
knowledge of the theory of Costing, there was a low understanding of how it
might be used in a hotel context (Burgess and Bryant, 2001).
1.2 Statement of the Problem
This
study shall find out:
The
major accounting system operated by most hotels.
i.
If the accounting
system adequately identifies receipts and expenditures for each grant or
contract.
ii.
Weather the
accounting system provides for recording of expenses for each category.
iii.
The relevance of costing
method in hotel industries.
iv.
Absence of poor
supervision by the regulatory bodies over the activities of the hotel industries
v.
Lack of execution by
the regulatory bodies to effectively monitor compliance with established rules
and policies.
1.3. Objective of the
Study
The
managers in every field of human Endeavour need information that is relevant,
objective and timely for planning, decision making and controlling of business
activities in order to achieve the goal of the organization.
The
study seeks to satisfy the following objectives:
i.
Identification of the
major costing method in hotel industries in Kaduna state.
ii.
The type of
accounting systems used in hotel operations in Kaduna state.
iii.
To analyse the
budgetary allocation.
iv.
Provide relevant and
timely information to management for effective and efficient decision making.
v.
Re-examine the
costing method adopted for improving the organisation profit.
vi.
To find out any
information gap encountered by any regulatory agency in its relationship with
any other hotels industries.
1.4 Significance
of the Study
The
significance of the study would help to determine how effectively and
efficiently is costing method applied in hostel activities in Kaduna State. The
research helps the hotel in achieving its main objectives and goals it will
help in the satisfaction of customers which is the focus point of every
business organisation.
This
study will also help researcher on this topic access information and their
relevant data on the related subject matter.
The
study will be of advantage to potential and existing investors in determining
their source of capital and also help to manage their working capital and
structure.
It
will enable the researcher fulfil part of the requirement for the award of
national diploma in Accounting Polytechnic Kaduna.
Finally,
to our fellow students, it will be a reference material for further research work.
1.5 Research Hypothesis/Questions
The
study would test the following hypothesis which will serve as a guide to wards
the realization of the study or research work.
H0: There is no relation between the application of costing method in
hostel and its performance.
H1: There is relationship between the application
of costing method in hostel and its performance.
i.
What is the size or
numbers of rooms?
ii.
What is your company
management status?
iii.
Number of beds?
iv.
What type of hotel
services do you operate?
v.
What level of service
does your hotel operate?
vi.
Numbers of customers
served per week
vii.
What type of
accounting system do you use?
viii.
Do you have an
accounting chart?
ix.
Do you maintain the following
accounting entries?
x.
Does the accounting
system adequately identify receipt and expenditures for each grant or contract?
xi.
Does the accounting
system provide for recording for each program by budget cost categories?
xii.
Is time distribution
record maintained for each employee to account for 100 percent of his/her
hours?
xiii.
Are records keeping
duties for the receipt and payment of cash separated?
xiv.
Are all accounting
entries supported by documentation that gave rise to the transaction?
xv.
Are budget controls
in effect to prelude incurring obligations in excess of total funds available
for an award?
xvi.
Are budget controls
in effect to prelude incurring obligations in excess of total funds available
for a budget cost category?
1.6 Scope of
the Study
This
project work covers the extent to which Application of costing method is
effectively and efficiently applied in the hotel industry with particular
reference to Kaduna Central and Kaduna South Local Government Areas of Kaduna
State. The major attraction at the study will be on area like costing method,
types of costing books used, planning, developing and regulating costing method
in hotel industry.
Finally,
the information that will be obtained will be used to make generalization on
the application of costing method for hotels industries.
1.7 Historical
Background of the Study
Hamdala Hotel is located in the central
area of Kaduna city, about 45 minutes drive from Kaduna International Airport
and about five minutes drive from the city centre. The Hotel is within a serene
environment with a standard golf course field adjacent to it.
Established by the Sardauna of Sokoto,
Late Alhaji Sir Ahmadu Bello G.C.O.N, K.B.E, Premier of the former Northern
region. Hamdala has remained the only premier hotel in the region, and had
weathered the entire storm to survive today as one of the lasting legacies of
the late Sir Ahmadu Bello. The radical capacity building and service
improvement policy of the management supported by the New Nigerian Development
Company; owners of the hotel has kept this edifice into reckoning in
hospitality services in the country.
"In this hotel we will have a
befitting edifice: accommodation for all our overseas guests, 12 storey air
conditioned throughout; 150 bedrooms all with private bathrooms; a banquet room
to seat 250 persons; a domed ballroom to accommodate some 500 guests, in
addition, an air- conditioned cinema, TV theatre will be placed to lay side by
side of the room block..”Alhaji Sir Ahmadu Bello, Sarduana of Sokoto at the
foundation laying ceremony of Hamdala hotel, January 4th, 1961 in Kaduna.
That was in the beginning, more than 4
decades after. Hamdala, the northern star of hospitality is refocused on the
vision of its founding fathers. In pursuance of its mission, the hotel has
continuously redoubled its effort to meet up the challenges of the time. The
hotel is wearing a new look, and the changes are ongoing. 26 air-conditioned
suites, exquisitely decorated with multiple view of the adjoining area with
private balcony attached to some suites. The presidential suites are tastefully
furnished and equipped for comfort and relaxation of guests.
The hotel is the ideal place for
banquets, wedding and AGM's (Annual General Meetings). The elegant garden of
the Hotel provides natural scenery, beauty and relaxation. The Hotel has a
new unity hall that is fully equipped and furnished to taste.
Breakfast, lunch or dinner is available
on request where delicious buffets are served; or Ala carte.
Enjoy exotic cocktails at our bars and feel totally
relaxed
Established by the Sardauna of Sokoto,
Late Alhaji Sir Ahmadu Bello G.C.O.N, K.B.E, Premier of the former Northern
region. Hamdala has remained the only premier hotel in the region, and had
weathered the entire storm to survive today as one of the lasting legacies of
the late Sir Ahmadu Bello. The radical capacity building and service
improvement policy of the management supported by the New Nigerian Development
Company; owners of the hotel has kept this edifice into reckoning in
hospitality services in the country.
"In this hotel we will have a
befitting edifice: accommodation for all our overseas guests, 12 storey air
conditioned throughout; 150 bedrooms all with private bathrooms; a banquet room
to seat 250 persons; a domed ballroom to accommodate some 500 guests, in
addition, an air- conditioned cinema, TV theatre will be placed to lay side by
side of the room block..”—Alhaji Sir Ahmadu Bello, Sarduana of Sokoto at the
foundation laying ceremony of Hamdala hotel, January 4th, 1961 in Kaduna.
That was in the beginning, more than 4
decades after. Hamdala, the northern star of hospitality is refocused on the
vision of its founding fathers. In pursuance of its mission, the hotel has
continuously redoubled it's effort to meet up the challenges of the time. The
hotel is wearing a new look, and the changes are ongoing,26 air-conditioned
suites, exquisitely decorated with multiple view of the adjoining area with
private balcony attached to some suites. The presidential suites are tastefully
furnished and equipped for comfort and relaxation of guests.
The hotel is the ideal place for
banquets, wedding and AGM's (Annual General Meetings). The elegant garden of
the Hotel provides natural scenery, beauty and relaxation. The Hotel has a
new unity hall that is fully equipped and furnished to taste. Breakfast, lunch
or dinner is available on request where delicious buffets are served; or Ala
carte. Enjoy exotic cocktails at our bars and feel totally relaxed.
1.8 Definition
of Term
Costing method; is a financial
recording and reporting method in which a parent firm's investment in a
subsidiary is shown at cost, without indicating the effect of the subsidiary's
profit or loss on the investment.
Inventory valuation method based on the
acquisition cost (invoice price of the purchases less discounts plus
transportation)
Activity-based
costing (ABC); is a costing methodology that identifies activities in an
organization and assigns the cost of each activity with resources to all
products and services according to the actual consumption by each.
Traditional
costing; assigns manufacturing overhead based on the volume of a cost driver,
such as the amount of direct labour hours needed to produce an item. A cost
driver is a factor that causes cost to incur, such as machine hours, direct
labour hours and direct material hours.