A large, downtown hotel allocated all of its restaurant labor costs on the basis

Question

A large, downtown hotel allocated all of its restaurant labor costs on the basis of revenue dollars. This hotel had seven restaurant outlets that were vastly different, including banquet, room service, a bar, a 24-hour restaurant, and a fine-dining facility. There are obvious differences in the way labor resources are consumed in these various outlets. However, the most glaring example was in the banquet operation. Because banquets were not regularly scheduled events, the banquet manager hired servers as contract laborers. These costs were not included in the restaurant labor pool. Therefore, the banquet manager got charged for his actual labor, plus an allocation for labor he was not utilizing. As it worked out, the more banquets that were hosted, the lower the income shown by the banquet operation.

Suggest a better way to allocate the cost of the contract laborers. How will this change the profitability of the overall organization?

Explanation / Answer

Currently allocation is made on the basis of revenue dollars from the respective outlets. But the best way to allocate the cost of the contract laborers would be the the proportion of utilisation of the labours. So how much a labor has work for the particular outlet will decide his allocation not the revenue.

Thus, if business follows above policy then actual picture of individual organisation can be cleared and also profitability of overall organization can also be increased by utilising contract labors in its full capicity.

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