Customer protability analysis

with time-driven activity-based

costing: a case study in a hotel
Ilhan Dalci
Eastern Mediterranean University, Famagusta, Turkey
Veyis Tanis
Business Administration, C ukurova University, Adana, Turkey, and
Levent Kosan
Silifke Vocational Business School, Mersin University, Mersin, Turkey
Abstract
Purpose The purpose of this paper is to show the implementation of customer protability
analysis (CPA) using time-driven activity-based costing (TDABC), in a Turkish hotel.
Design/methodology/approach A case study was conducted in a four-star hotel with 100-room
capacity in the C ukurova region of Turkey. Interviews, direct observations, and documentation
collection were used to collect the data.
Findings The results showed that some of the customer segments which were found unprotable
under the conventional ABC method were determined protable using TDABC. The case study also
revealed the cost of idle resources devoted for front ofce, housekeeping, food preparation, and
marketing activities.
Research limitations/implications Only a single hotel operating in Turkey is examined in this
paper. Further research should focus on implementing CPA using TDABC in other hotels in Turkey
and abroad.
Practical implications Based on the results of the study, the hotel management is better able to
understand protability of different customer segments and implement appropriate strategies.
Moreover, the time equations of TDABC are considered to provide hotel management with an
opportunity to better balance the capacities supplied in departments.
Originality/value There is limited research relating to protability analysis in service companies
in general and in the hotel industry in particular. Therefore, this paper is unique in the sense that it
analyzes the use of TDABC systems for CPA within a real case hotel.
Keywords Activity based costs, Prot, Customers, Hotels, Turkey
Paper type Case study
1. Introduction
Customer cost information is essential for managerial decision making. Therefore,
understanding true costs of serving specic customers is important in any organization.
Companies that understand which customers are more protable and which ones are
not, are armed with valuable information needed to make successful managerial
decisions to improve overall organizational protability (Raaij et al., 2003). Cotton (2005)
and Cooper and Kaplan (1991), also suggest that understanding how current customer
relationships differ in protability enables managers to make better managerial
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0959-6119.htm
Customer
protability
analysis
609
Received 15 April 2009
Revised 1 September 2009,
22 October 2009,
1 December 2009
Accepted 13 December 2009
International Journal of
Contemporary Hospitality
Management
Vol. 22 No. 5, 2010
pp. 609-637
qEmerald Group Publishing Limited
0959-6119
DOI 10.1108/09596111011053774
decisions. However, obtaining accurate information about customer protability
necessitates the use of an appropriate costing system.
Customer protability analysis (CPA) entails allocation of revenues and costs to
specic customers in a way that the protability of individual customers can be
calculated. Owing to the increased size and organizational complexity of service rms,
Kaplan and Narayanan (2001) state that understanding CPA is especially important for
service companies. Indeed, for service companies, CPA is more important than
production companies because the cost of providing a service is generally determined
by customer behavior. According to Zeithaml and Bitner (1996), the cost of nding and
gaining a new customer in service companies is ve times greater than the cost of
retaining current customers. Therefore, successful implementation of CPA in order to
retain protable relationships with current customers is essential for service
companies. Moreover, Cotton (2005) asserts that the effective use of CPA enables
service companies to increase customer satisfaction and boost protability.
According to Cooper (1988), the use of activity-based costing (ABC) enhances the
traditional contribution margin approach and the quality of CPA. The ABC system
was promoted by Cooper and Kaplan in the mid-1980s, as an alternative costing
system to the traditional one, based on their experiences with some production
companies in the USA (Gunasekaran and Sarhadi, 1998). Subsequent studies dealt with
the deciencies of traditional costing systems in automated production environments
(Innes, 1999; Baird et al., 2004). The activity-based approach to overhead costs is an
extension of the traditional volume-based costing that treats manufacturing overhead
as a complex set of costs with multiple cost-drivers (Drake et al., 2001). Rotch (1990)
points out that the conditions necessary for manufacturing rms to successfully
implement ABC are necessary for service companies as well.
The ABC approach assumes that products or customers generate activities, and the
activities consume resources (Cooper, 1988). ABC is based on a two-stage allocation
process. First of all, the costs of resources are allocated to the activities using rst-stage
cost drivers, and then the costs of activities are apportioned to cost objects by means of
volume and non-volume related drivers (Cooper, 1990). That is, the activity costs are
allocated to the cost objects based on the relevant cost drivers (i.e. number of machine
hours, number of setups, number of design specications, and number of customer
visits). The cost drivers are linkage between activities and cost objects (Cooper, 1988,
1990; Cooper and Kaplan, 1992). The rise of ABC has led to the understanding that not
every customer consumes the same level of activities and resources. Moreover,
resources that particular activities consume are measured in terms of cost driver units.
This is due to the fact that, while traditional cost systems rely on arbitrary cost
allocations of overhead costs, ABC classies cost pools according to the activities (unit,
batch, product, and facility levels) performed within the organization (Kaplan and
Cooper, 1988). Understanding the hierarchical levels of the costs of ABC enables
managers to better understand cost causation, and hence make better decisions. Thus,
with ABC, managers are better equipped to understand which customers are protable
and which ones are not (Kaplan and Cooper, 1998). Additionally, according to Cooper
and Kaplan (1992), the use of ABC by organizations has led to increased protability.
Despite the fact that the ABC system can be a sufcient costing method, it has some
drawbacks. First, due to complexity of the activities performed within organizations,
ABC may take too much time to be implemented (Kaplan and Anderson, 2004). Second,
IJCHM
22,5
610
when activities, that contain more than one subtask with different cost drivers, are
intensied, ignoring that complexity may result in the misallocation of the costs. Third,
since the ABC system needs to be updated regularly, it becomes too costly to
re-interview and re-survey people engaged in the activities (Kaplan and Anderson,
2004). The downsides of traditional ABC system alerted Kaplan and Anderson to
introduce a new costing method called time-driven ABC (TDABC) system to address
the above-mentioned limitations. However, using TDABC in order to bring solutions to
the problems of conventional costing systems does not mean that ABC should be
completely abandoned. Proponents of TDABC argue that it removes time-consuming
and costly interviews and surveys which have been a major barrier to the
implementation of a traditional ABC system, as well as it allows cost driver rates to be
calculated based on the practical capacity of the resources supplied (Kaplan and
Anderson, 2007b).
Under a traditional ABC system, the costs of activity-cost pools, are apportioned
amongst cost objects using activity drivers (Kaplan and Cooper, 1998). On the other
hand, under a TDABC system, these costs are allocated to the cost objects on the basis of
time units consumed by the activities (Kaplan and Anderson, 2004). The TDABC
approach requires identifying resources needed to perform the activities, as it is done
under a traditional approach. It also requires time needed to perform the activities and
the practical rather than the theoretical capacity of the resources supplied. Theoretical
capacity equals the theoretically available working minutes, whereas practical capacity
is expressed as the amount of time that employees can work without idle time (Kaplan
and Anderson, 2007a). The practical capacity of the resources excludes the time that
employees spend on activities (such as having a rest and taking a break) which are
unrelated to actual work performance. Two important aspects of a TDABC system are:
estimating the practical capacity of the resources supplied and the cost of these
resources. Dividing the total cost of resources supplied by the practical capacity yields
the cost per time unit. Then, the time neededfor performing the activities is multiplied by
the cost per time unit in order to assign the costs to products or customers. With the help
of the time equations of TDABC, the time needed to performan activity can be estimated
without any need to continually re-interview people. These time equations can include
multiple time drivers if an activity is driven by more than one driver. Obviously, the
TDABCapproach, withits time equations, makes it possible to knowhowmany minutes
that staff members spend on activities in a particular time period. Therefore, the time
equations of TDABC can provide larger transparency than a traditional ABC system.
With TDABC, it is also possible to pinpoint which customers consume the largest
amount of time and resources (Kaplan and Anderson, 2004).
Research conducted on the analysis of costing systems, in the service industry in
general and the tourism industry in particular, is very limited. There has also been
little innovation regarding cost accounting practices in the hospitality industry (Potter
and Schmidgall, 1999). Fay et al. (1976) demonstrated the use of conventional costing
systems in the hospitality industry. Nordling and Wheeler (1992) implemented CPA in
the Hilton Hotel in Las Vegas. However, analysis of the activities in allocating the
overhead costs was not completed in that study. Although the use of ABC in the
application of CPA in the hospitality industry has attracted little interest, there has
been detailed research about costing practices in tourism enterprises after 1999. In a
case study conducted in a hotel by Noone and Grifn (1999), activities were determined
Customer
protability
analysis
611
at macro and micro level and the cost of these activities were assigned to specic
customers using ABC. Raab and Mayer (2003), surveyed restaurant controllers in the
USA and they found that the use of ABC was almost non-existent in the restaurants.
They also discovered that the use of ABC could be appropriate for the restaurants due
to the characteristics inherent in the restaurant industry. Raab et al. (2005) tested a
model for ABC in a buffet style restaurant in Hong Kong. Raab and Mayer (2007)
analyzed how menu engineering (ME) can be integrated with ABC to determine
whether or not the integration of ME with ABC can boost the protability of a dinner
buffet in a restaurant in Hong Kong. Ultimately, Raab et al. (2009) applied
activity-based pricing in a restaurant setting. The ndings of that study show that
ABC could be used by restaurant managers to better analyze the cost structure of their
restaurants.
Nevertheless, there are many issues, relating to cost and management accounting
practices in the hospitality industry, that deserve research attention (Pellinen, 2003;
Dittman et al., 2008). Several researchers as mentioned above have advocated the use of
ABC in the hospitality industry. However, the costs of activities have not been
analyzed using TDABC in the hospitality industry even though this method has been
applied in other industries. Pernot et al. (2007) used a case study in a university to show
how to use a TDABC system for inter-library services. They argue that TDABC can
improve the cost management of all library services because it enables library
managers to take appropriate actions to reduce the time needed for specic requests of
library customers. Everaert et al. (2008) described a case in a distribution company and
showed that ignoring the complexity of activities containing more than one subtask
with different time drivers, resulted in a misallocation of 54 percent of the costs when
the traditional ABC system rather than a TDABC approach was used. In a recent
study, Demeere et al. (2009) showed how to implement a TDABC model for ve
outpatient clinic departments through a case study. They uncovered that the use of a
TDABC system provided the healthcare managers and physicians with valuable
information which assisted them in operational improvements, making protability
analysis for departments, and deciding on future investments.
The general aim of this paper is to show the implementation of CPA with TDABC in
a hotel operating in the C ukurova region in Turkey. The case hotel is located in the city
of Mersin. The city of Mersin is important for the regions economy because trade
among Turkey, the Middle East, and Europe takes place through the Mersin Port.
Therefore, most of the businesspeople conducting business through the Mersin Port
prefer to stay in the hotels which are located in the city. Thus, hotels have signicant
impact on the economic development of the C ukurova region. In that respect,
implementing CPA successfully for accurate and effective managerial decision making
is important for the managers of the hotels located in this region.
2. The case study and research design
This study adopted both convenience and purposive sampling techniques to select the
research sample (Altinay and Paraskevas, 2008). One of the co-authors of this study
previously worked for the hotel to have experience during his summer holidays. Thus,
he knew the managers and asked for permission to conduct a research of this kind.
He met the hotels managers for a preliminary discussion and he realized that the
case hotel was measuring customer protability by using a traditional ABC system.
IJCHM
22,5
612
Then, he explained to the managers the benets of conducting this case study in their
hotel. The managers of the hotel accepted to give permission for the research with a
condition that, due to condentiality reasons, the hotels name should not be disclosed
in the paper. This request was taken into account and the researchers commenced the
study in the hotel and concluded it within one year.
The physical and environmental information about the hotel is as follows: it is a
four-star hotel operating with 100 rooms in the C ukurova region in Turkey. The hotel
operates at an annual occupancy rate of 60 percent. In addition to a banqueting hall,
steam bath, meeting room, bar, and business centre facilities, various other services
which are suitable for four-star hotel standards are also offered in the hotel. The case
hotel employs 53 personnel (one general manager, one assistant general manager, four
front ofce clerks, seven housekeepers, 30 restaurant staff, two marketing personnel,
three bartenders, two accounting personnel, and two human resource managers).
Our study in the case hotel started in September 2006 and ended in September 2007.
The data presented in this case study represent real gures gathered throughout the
one-year period. All the data presented in this study are expressed in US$. The cost
data were compiled during a three-month (September, October, and November) period
in 2006. In order to compile consistent data regarding the time spent on the activities,
needed for deriving the time equations used in the TDABC model, we observed the
actions of the personnel while they were performing the tasks several times during
the year of 2007. Additionally, we conducted follow-up interviews during the last three
months of the study in 2007 in order to verify and validate the accuracy of the data. By
comparing the results we obtained at different times, we computed the average times
for each of the activities. Moreover, documentation was collected from nancial reports
in order to gain a rich description of the hotels costing system and to understand how
managers implement CPA. All of the above-mentioned case study applications were
conducted with the following theoretical background and literature.
A qualitative research strategy was used as the most appropriate method for a case
study of this kind because case studies are often associated with qualitative research
design even though they can be conducted with both qualitative and quantitative
research methods (Yin, 1994). According to Ryan et al. (2007), Lee (1999) and Yin (1994),
case studies provide the researchers with an opportunity to understand the nature of
accounting systems which are currently used in practice. Moreover, case studies could
be used to explore the application of new procedures. As suggested by Yin (1994), case
studies investigate a contemporary phenomenon in its real-life context and more than
one case can be conducted at a time. Since the main purpose of our study was to
understand the costing system currently applied and to evaluate the applicability of
TDABC in a hotel setting, the case study method was deemed to be the most appropriate
methodto gainin-depthunderstandingof the hotel. In the study, a descriptive case study
was rst used in order to explicate the accounting system currently used in the case
hotel. Then, we used an experimental case study method in order to evaluate the
applicability of the new costing system (TDABC) in the hotel.
We used qualitative research methods for gathering data regarding the costing
method currently used by the hotels accountants, activities performed in the hotel, unit
times needed for performing the activities, and detailed costs of these activities.
Semi-structured interviews that lasted between 45 minutes and one hour with the
personnel of the hotel (i.e. general manager, general assistant manager, cost accountant,
Customer
protability
analysis
613
receptionists, housekeepers, marketing personnel, and waiters), direct observations, and
documentation collection were used as data-collection methods. Semi-structured
interviews were chosen because they enable the researchers to understand the issues in
depth (Bryman and Bell, 2007). The interviews were conducted based on a detailed
interview schedule that was agreed upon with assistant general manager of the hotel.
The interviewees were asked closed-ended as well as open-ended questions on issues
relating to main activities performed in the hotel, the tasks performed by each staff
member, type of costs incurred, and the customers of the hotel. The purpose of those
interviews was to clarify how staff members performed their tasks and how much
time (in terms of minutes) they spend on performing these tasks. Direct observations
were also used to examine the activities while the staff members physically perform the
tasks. As suggested by Tharenou et al. (2007), observations are important tools for
understanding the procedures. In that respect, we conducted observations in order to
ensure that the data gathered through interviews accurately reected the real time
experiences of the employees. After each visit to the relevant department, we wrote up
notes in order to analyze the nature of the activities. We also documented the tasks
performed by the staff members. All the interviews were recorded on tape, and the data
obtained through these interviews were led. We transcribed all tapes and notes and
read the transcripts several times in order to make thorough activity analysis. The cost
data were obtained fromthe cost reports documented by the accounting department. We
used the cost reports to get an insight into the costing systemcurrently employed by the
hotels cost accountants (Tables I and II).
We also utilized job descriptions in reviewing the tasks. In addition, we analyzed the
annual reports of the hotel in order to analyze revenues generated from accommodation
and other revenue generating areas, especially food and beverage spending. We
developed time equations using the data concerning the tasks and unit times needed to
perform these tasks. Based on the time equations that we formulated and the cost data
provided by the accounting department, we allocated the costs to customer segments
using TDABC. Ultimately, we computed protability gures for the customer
segments using TDABC and compared TDABC results to the ones found under the
conventional ABC, as presented in Tables V and VI.
Customer segments of the case hotel
The implementation process for CPA started with scrutinizing the current customer
segments (groups) of the case hotel. The customers of the hotel were determined as
follows:
.
Group 1. This group includes managers of local and foreign companies. The
greatest share (48 percent) in the sales mix belonged to this group of customers.
These customers generally utilized accommodation and food and beverage
services.
.
Group 2. This customer group constitutes customers brought to the hotel by the
travel agents operating both in internal and external markets. That group had
the second highest sales mix percentage (19 percent). The customers clustered in
this group utilized accommodation and food and beverage services.
.
Group 3. These customers represent people holding managerial positions in
government-owned institutions. This customer group used accommodation and
food and beverage services and had a 10 percent share in the total sales mix.
IJCHM
22,5
614
C
o
s
t
c
e
n
t
e
r
s
T
o
t
a
l
c
o
s
t
s
(
$
)
C
o
s
t
d
r
i
v
e
r
C
o
s
t
p
o
o
l
r
a
t
e
F
r
o
n
t
o
f

c
e
H
o
u
s
e
k
e
e
p
i
n
g
M
a
r
k
e
t
i
n
g
F
o
o
d
p
r
e
p
a
r
a
t
i
o
n
B
e
v
e
r
a
g
e
p
r
e
p
a
r
a
t
i
o
n
B
a
n
q
u
e
t
i
n
g
D
e
p
r
e
c
i
a
t
i
o
n
1
5
6
,
6
6
0
D
i
r
e
c
t
$
9
,
2
6
0
$
2
8
,
5
0
0
$
1
6
,
4
0
0
$
3
8
,
4
0
0
$
2
6
,
7
0
0
$
3
7
,
4
0
0
P
e
r
s
o
n
n
e
l
2
6
5
,
2
8
1
D
i
r
e
c
t
$
3
4
,
4
0
4
$
6
8
,
9
4
5
$
2
6
,
2
8
8
$
9
0
,
2
9
1
$
2
2
,
8
4
8
$
2
2
,
5
0
5
E
n
t
e
r
t
a
i
n
m
e
n
t
1
7
7
,
1
0
6
D
i
r
e
c
t
$
1
7
7
,
1
0
6
F
o
o
d
a
n
d
b
e
v
e
r
a
g
e
4
0
3
,
2
1
3
A
c
t
u
a
l
u
s
a
g
e
$
1
1
4
,
7
4
7
$
1
7
8
,
4
6
6
$
1
1
0
,
0
0
0
C
l
e
a
n
i
n
g
a
n
d
l
a
u
n
d
r
y
2
8
2
,
0
7
6
L
a
u
n
d
r
y
a
n
d
c
l
e
a
n
i
n
g
h
o
u
r
s
$
1
2
.
2
4
2
8
/
h
o
u
r
$
1
6
8
,
6
5
6
$
3
3
,
5
1
1
$
4
4
,
5
0
4
$
3
5
,
4
0
5
2
3
,
0
4
0
h
o
u
r
s
1
3
,
7
7
6
h
o
u
r
s
2
,
7
3
7
h
o
u
r
s
3
,
6
3
5
h
o
u
r
s
2
,
8
9
2
h
o
u
r
s
S
t
a
t
i
o
n
a
r
y
3
,
8
4
0
A
c
t
u
a
l
u
s
a
g
e
$
2
,
0
3
1
$
4
4
6
$
8
8
6
$
4
7
7
T
e
l
e
p
h
o
n
e
9
,
4
1
5
D
i
r
e
c
t
$
6
,
5
9
0
$
2
,
8
2
5
M
a
r
k
e
t
i
n
g
5
4
,
9
7
7
D
i
r
e
c
t
$
5
4
,
9
7
7
E
n
e
r
g
y
,
b
u
i
l
d
i
n
g
d
e
p
r
e
c
i
a
t
i
o
n
a
n
d
i
n
s
u
r
a
n
c
e
2
2
1
,
2
3
5
A
r
e
a
$
5
0
.
7
4
2
/
s
q
u
a
r
e
m
e
t
e
r
$
1
1
,
8
5
0
$
8
4
,
2
3
1
$
3
4
,
0
9
6
$
4
9
,
0
2
7
$
4
2
,
0
3
1
4
,
3
6
0
s
q
u
a
r
e
m
e
t
e
r
s
2
3
3
.
5
s
q
u
a
r
e
m
e
t
e
r
s
1
,
6
6
0
s
q
u
a
r
e
m
e
t
e
r
s
6
7
2
s
q
u
a
r
e
m
e
t
e
r
s
9
6
6
.
2
s
q
u
a
r
e
m
e
t
e
r
s
8
2
8
.
3
s
q
u
a
r
e
m
e
t
e
r
s
H
u
m
a
n
r
e
s
o
u
r
c
e
s
8
3
,
0
0
0
E
s
t
i
m
a
t
e
d
$
1
1
,
6
2
0
$
4
2
,
3
3
0
$
9
,
9
6
0
$
1
0
,
7
9
0
$
4
,
9
8
0
$
3
,
3
2
0
p
e
r
c
e
n
t
a
g
e
o
f
t
i
m
e
1
4
%
5
1
%
1
2
%
1
3
%
6
%
4
%
(
c
o
n
t
i
n
u
e
d
)
Table I.
Costs allocated to
customer groups under
traditional ABC
(allocation of costs to
activity-cost pools)
Customer
protability
analysis
615
C
o
s
t
c
e
n
t
e
r
s
T
o
t
a
l
c
o
s
t
s
(
$
)
C
o
s
t
d
r
i
v
e
r
C
o
s
t
p
o
o
l
r
a
t
e
F
r
o
n
t
o
f

c
e
H
o
u
s
e
k
e
e
p
i
n
g
M
a
r
k
e
t
i
n
g
F
o
o
d
p
r
e
p
a
r
a
t
i
o
n
B
e
v
e
r
a
g
e
p
r
e
p
a
r
a
t
i
o
n
B
a
n
q
u
e
t
i
n
g
S
t
o
r
i
n
g
7
9
,
6
0
9
S
p
a
c
e
o
c
c
u
p
i
e
d
6
6
3
.
4
1
/
s
q
u
a
r
e
m
e
t
e
r
$
5
2
,
4
1
0
$
1
3
,
2
6
8
$
6
,
6
3
4
$
7
,
2
9
7
1
2
0
s
q
u
a
r
e
m
e
t
e
r
s
7
9
s
q
u
a
r
e
m
e
t
e
r
s
2
0
s
q
u
a
r
e
m
e
t
e
r
s
1
0
s
q
u
a
r
e
m
e
t
e
r
s
1
1
s
q
u
a
r
e
m
e
t
e
r
s
P
u
r
c
h
a
s
i
n
g
1
6
5
,
6
0
3
O
r
d
e
r
s
$
2
5
0
/
o
r
d
e
r
$
1
0
,
0
0
0
$
8
8
,
1
0
3
$
1
8
,
0
0
0
$
3
7
,
0
0
0
$
1
2
,
5
0
0
6
6
2
o
r
d
e
r
s
4
0
o
r
d
e
r
s
3
5
2
o
r
d
e
r
s
7
2
o
r
d
e
r
s
1
4
8
o
r
d
e
r
s
5
0
o
r
d
e
r
s
G
e
n
e
r
a
l
(
a
d
m
i
n
i
s
t
r
a
t
i
n
g
a
n
d
8
0
,
0
0
0
E
s
t
i
m
a
t
e
d
$
1
1
,
2
0
0
$
1
2
,
0
0
0
$
1
2
,
0
0
0
$
1
6
,
0
0
0
$
1
3
,
6
0
0
$
1
5
,
2
0
0
a
c
c
o
u
n
t
i
n
g
a
n
d

n
a
n
c
e
)
p
e
r
c
e
n
t
a
g
e
o
f
t
i
m
e
1
4
%
1
5
%
1
5
%
2
0
%
1
7
%
1
9
%
R
e
p
a
i
r
a
n
d
m
a
i
n
t
e
n
a
n
c
e
1
1
0
,
1
2
0
M
a
i
n
t
e
n
a
n
c
e
t
i
m
e
$
1
.
4
3
3
9
/
m
i
n
u
t
e
$
2
8
,
1
5
0
3
4
,
0
3
3
2
,
0
0
0
1
1
,
8
0
0
2
9
,
1
3
7
5
,
0
0
0
7
6
,
8
0
0
m
i
n
u
t
e
s
1
9
,
6
3
2
m
i
n
u
t
e
s
2
3
,
7
3
5
m
i
n
u
t
e
s
1
,
3
9
5
m
i
n
u
t
e
s
8
,
2
3
0
m
i
n
u
t
e
s
2
0
,
3
2
1
m
i
n
u
t
e
s
3
,
4
8
7
m
i
n
u
t
e
s
T
o
t
a
l
(
$
)
2
,
0
9
2
,
1
3
5
1
2
5
,
1
0
5
5
7
9
,
2
0
8
1
2
4
,
4
5
0
3
8
1
,
3
4
9
4
1
3
,
7
8
2
4
6
8
,
2
4
1
Table I.
IJCHM
22,5
616
A
c
t
i
v
i
t
i
e
s
T
o
t
a
l
G
r
o
u
p
1
G
r
o
u
p
2
G
r
o
u
p
3
G
r
o
u
p
4
G
r
o
u
p
5
G
r
o
u
p
6
G
r
o
u
p
7
G
r
o
u
p
8
F
r
o
n
t
o
f

c
e
T
o
t
a
l
c
o
s
t
(
$
)
1
2
5
,
1
0
5
3
5
,
6
1
9
4
1
,
4
6
8
8
,
7
3
0
2
6
,
1
9
2
1
0
,
9
1
3
2
,
1
8
3
N
o
.
o
f
a
r
r
i
v
a
l
s
1
7
,
9
9
3
5
,
1
2
3
5
,
9
6
4
1
,
2
5
6
3
,
7
6
7
1
,
5
7
0
3
1
4
C
o
s
t
d
r
i
v
e
r
r
a
t
e
(
$
)
6
.
9
5
2
9
H
o
u
s
e
k
e
e
p
i
n
g
T
o
t
a
l
c
o
s
t
(
$
)
5
7
9
,
2
0
8
2
7
8
,
0
2
0
8
4
,
9
3
4
9
0
,
4
1
4
4
8
,
0
5
8
6
8
,
9
9
0
5
,
7
9
2
N
o
.
o
f
n
i
g
h
t
s
3
1
,
3
9
0
1
5
,
0
6
7
4
,
6
0
3
4
,
9
0
0
2
,
7
6
7
3
,
7
3
9
3
1
4
C
o
s
t
d
r
i
v
e
r
r
a
t
e
(
$
)
1
8
.
4
5
2
2
5
M
a
r
k
e
t
i
n
g
T
o
t
a
l
c
o
s
t
(
$
)
1
2
4
,
4
5
0
9
3
,
8
6
3
5
,
2
1
4
1
5
,
0
4
2
8
0
2
1
,
2
0
3
5
0
1
7
,
8
2
5
N
o
.
o
f
c
u
s
t
o
m
e
r
v
i
s
i
t
s
2
,
4
8
2
1
,
8
7
2
1
0
4
3
0
0
1
6
2
4
1
0
1
5
0
C
o
s
t
d
r
i
v
e
r
r
a
t
e
(
$
)
5
0
.
1
4
0
F
o
o
d
p
r
e
p
a
r
a
t
i
o
n
T
o
t
a
l
c
o
s
t
(
$
)
3
8
1
,
3
4
9
1
5
6
,
2
7
8
5
8
,
3
6
4
3
2
,
4
1
2
4
0
,
9
6
9
9
0
,
2
3
6
3
,
0
9
0
N
o
.
o
f
c
o
v
e
r
s
6
7
,
6
5
2
2
7
,
7
2
4
1
0
,
3
5
4
5
,
7
5
0
7
,
2
6
8
1
6
,
0
0
8
5
4
8
C
o
s
t
d
r
i
v
e
r
r
a
t
e
(
$
)
5
.
6
3
6
9
2
B
e
v
e
r
a
g
e
p
r
e
p
a
r
a
t
i
o
n
T
o
t
a
l
c
o
s
t
(
$
)
4
1
3
,
7
8
2
4
1
3
,
7
8
2
B
a
n
q
u
e
t
i
n
g
T
o
t
a
l
c
o
s
t
(
$
)
4
6
8
,
2
4
1
4
6
8
,
2
4
1
T
o
t
a
l
(
$
)
5
6
3
,
7
8
0
1
8
9
,
9
8
0
1
4
9
,
5
6
8
1
1
5
,
2
1
9
1
7
0
,
9
4
1
4
6
9
,
4
4
4
1
1
,
5
6
6
4
2
1
,
6
0
7
Table II.
Costs allocated to
customer groups under
traditional ABC
(allocation of costs of
activity-cost pools to
customer groups)
Customer
protability
analysis
617
.
Group 4. These customers are walk-in customers coming to the hotel without
making reservations. This customer group used accommodation and food and
beverage services and had a 12 percent share in the total sales mix.
.
Group 5. Professional sport clubs coming to the city of Mersin to play football
matches constitute this group. Customers in this group stayed in the hotel for one
or two days and had a 10 percent share in the total sales mix.
.
Group 6. This customer group comprises people who organize parties and
wedding ceremonies in the hotel. Customers in group 6 received catering and
entertainment services and did not stay overnight in the hotel.
.
Group 7. These customers come to the hotel to participate in wedding ceremonies
and parties and stay in the hotel for just one night. This group had a 1 percent
share in the total sales mix.
.
Group 8. Customers who come to the hotel only for bar and entertainment
services are clustered in this group. These customers do not stay overnight in the
hotel.
Activities performed in the case hotel
In the case hotel, we identied six general activities. Each of these activities comprises
several subtasks (sub-activities). These activities and the related subtasks are:
marketing (making calls to customers in order to arrange visits, giving information via
e-mail or fax, making customer visits, advertising, and making promotional campaigns),
front ofce (reservation and information, check-in and check-out, meeting and
welcoming customers, settling customers in the rooms, opening customers accounts,
controlling customers spending, accompanying customers when they are leaving, and
closing customers accounts), housekeeping (cleaning the rooms, making beds,
vacuuming, and replenishing linens), food preparation and service (taking orders,
preparing the kitchen for breakfast, lunch, and dinner, cooking, preparing and serving
breakfast, lunch, and dinner, cleaning the kitchen and the restaurant), beverage
preparation and service (preparing the bar for beverage service, servicing the beverages,
carrying out entertainment activities, and cleaning), and banqueting (making
preparations for catering events such as wedding ceremonies, parties, and meetings).
Allocation of costs to the customer groups under traditional ABC
In the case hotel, costs were initially totaled in cost centers along with their dollar value
(Table I). These cost centers were: personnel, stationary, telephone, marketing
(advertising, promotion, billboard, and customer visit costs), accounting and nance,
human resource, administrating, energy (electricity and heating costs), storing (rent,
air conditioning, and insurance costs), cleaning and laundry, purchasing, repair and
maintenance (material and personnel costs), entertainment, food and beverage (cost
of foods and beverage used for restaurant, bar, and catering events), and depreciation.
Then, the costs which were directly associated with particular activities were imputed
to relevant activity-cost pools. The direct costs that the accountants of the hotel
identied were: depreciation costs of equipment, furniture, and xtures that are used in
particular departments, personnel costs, and telephone costs. On the other hand, the
costs not directly related to the activities were allocated to the activity-cost pools by
means of relevant cost drivers. The activity cost-pools were: front ofce, housekeeping,
marketing, food preparation, beverage preparation, and banqueting.
IJCHM
22,5
618
According to traditional ABC literature (Cooper, 1990; Kaplan and Cooper, 1998),
facility-sustaining costs (i.e. accounting, nance, human resource, training, and
administrating costs) should be attributed to the activity centers rather than be traced to
individual customers. Since facility-sustaining costs cannot be determined as specic
costs for particular customers in the case hotel, these costs were rst apportioned to the
activity-cost pools. Then, fromthe activity-cost pools theywere allocatedto the customer
groups. This approach is also consistent with the ABC literature. Since it is difcult
to determine appropriate cost drivers and relevant consumption rates for the costs
of these types, they were apportioned to the activity-cost pools according to some
relevant pattern of usage. For allocating the costs of general support activities such as
administrating, accounting and nance, and human resource, the estimated percentage
of total personnel time spent for different departments was used as an allocation base.
Information about the time that the personnel, who are engaged in the general support
activities, spent for different departments were not documented in the case hotel.
Therefore, allocation of these costs was based on staff estimates of the time they spent on
each department.
For storing the goods, a 120-square meter warehouse was rented next to the hotel
building. The costs (rent, air conditioning, and insurance costs) gathered in the storing
cost center were allocated to the activity-cost pools based on the amount of oor
space occupied in the warehouse, which was measured in terms of square footage.
On the other hand, the costs of the purchasing cost center were allocated using the
number of purchase orders as an allocation base. The costs gathered in the repair
and maintenance cost center were allocated based on the actual maintenance time
spent. Information about the maintenance time was documented by the accounting
department.
The stationery and food and beverage costs were allocated according to actual usage
of stationary materials and food and beverage goods. The actual usage of these
resources was documented and maintained by the accounting department. The laundry
and cleaning costs (i.e. costs of personnel, depreciation cost of laundry machine, and cost
of cleaning materials) were apportioned among activities according to number of
cleaning hours spent. As can be seen in Table I, a major part of the cleaning costs were
allocated to the housekeeping activity because the laundry personnel take the most
time to wash and clean the linens of the rooms.
On the other hand, depreciation and insurance costs relating to the hotel building
were combined with energy costs in the same cost center (because these costs were
allocated using the same cost driver) and they were allocated to the activities based on
the amount of oor space that each department (restaurant, front ofce, banqueting
hall, rooms, bars, and disco) occupies. The entertainment costs were directly imputed to
the beverage preparation activity. Likewise, the costs (advertising, promotion,
personnel, and customer visit costs) which were gathered in the marketing cost center
were directly assigned to the marketing activity (Table I).
In allocating the indirect costs to the activities, cost pool rates were used (some
numbers in Table I were rounded to the nearest dollars therefore the numbers represent
approximate gures). For example, the total amount of purchasing costs was divided
by 662 orders (which is the total number of orders made during the study period) in order
to calculate a cost pool rate of $250 ($165,603/662 orders) per order. Then the rate of $250
was multiplied by the total number of orders made for each activity or department
Customer
protability
analysis
619
in order to allocate the purchasing costs to the activities. For example, the cost pool rate
of $250 was multiplied by 72 (total number of orders made for the purchase of the goods
to be used in the restaurant) in order to compute $18,000 (Table I).
After the costs were allocated to the activity-cost pools, the amounts were summed
up and the total amount of costs for each cost pool was calculated. For example, after
the amounts in the fth column in Table I were summed up, the total amount of costs
for the front ofce cost pool was computed as $125,105. Once the total costs of the
activity-cost pools were computed, the costs of each activity-cost pool were allocated to
the customers via second-stage activity cost drivers which were unique to each
activity-cost pool (Table II). The activity cost drivers used by the accounting personnel
in order to allocate the cost of front ofce, housekeeping, marketing, and food
preparation activity-cost pools were: the number of arrivals, number of nights spent by
customers, number of customer visits, and number of covers, respectively.
The costs allocated to the customer groups were calculated using the activity driver
rates which were computed by dividing the total amount of costs gathered in each
activity-cost pool by the quantity of the relevant activity cost driver. The activity
driver rate computed for each activity-cost pool was multiplied by the quantity of
related activity cost driver that each customer group consumes. For example, the total
cost ($125,105) of the front ofce activity-cost pool was divided by the total number
of arrivals (17,993) in order to calculate the activity driver rate of $6.9529 per arrival.
Then, the rate of $6.9529 was multiplied by the number of arrivals (quantity of cost
driver) related to a particular customer group in order to compute the amount of front
ofce costs that should be assigned to that group. For example, the activity driver rate
of $6.9529 was multiplied by 5,123 (total number of arrivals made by customers
clustered in group 1) in order to compute $35,619, which was the amount allocated to
the customer group 1. The rate per activity driver ($6.9529) was used as a single rate
for the front ofce cost pool because it was assumed that each cost driver activity
(arrival) consumes the same amount of resources. In fact, this approach is consistent
with the traditional ABC literature (Cooper and Kaplan, 1992).
One of the customer groups of the case hotel is the bar customers who come to the
hotel in order to utilize solely the bar services. As a result of the interviews, it was
realized that the bar of the case hotel operates to serve the bar customers rather than
the customers staying in the hotel. It was also realized that customers who stay in the
hotel receive food and beverage services in the restaurant rather than in the bar.
Therefore, the accountants of the hotel assigned the total cost of the beverage
preparation activity-cost pool ($413,782) only to the customer group 8. Likewise,
the total cost of the banqueting activity-cost pool ($468,241) was assigned to the
customer group 6 and customer group 7.
Allocation of costs under TDABC
The calculations made under the conventional ABC system were based on an
assumption that the resources of the hotel were utilized at full capacity. Moreover,
tracing the costs of activities such as food and beverage preparation, making customer
visits, and front ofce may become a challenging task for the hotel management.
This is due to the fact that, the way each customer consumes these activities differs
from one another. For instance, some customers take more of the personnels time to
decide what to eat and drink when they come to the restaurant of the hotel, while some
IJCHM
22,5
620
of them decide quite quickly. Some customers consume all of the available services in
the restaurant, whereas some of them do not. Likewise, some of the customers need
more advice about the services of the hotel at the front ofce, while some of them leave
the front ofce quickly. Moreover, when making visits to particular customers, the
marketing personnel need to travel and stay longer. Furthermore, the marketing staff
members spend more time giving information to some customers before making
customer visits. However, some customers do not consume that much effort and
resources. Thus, diversity in the use of resources by customers is likely to make it
difcult for the hotel management to analyze the costs using a traditional ABC system
because ABC uses single cost driver rate for each activity. This is because, the use of a
single cost driver does not adequately reect resource demands associated with the
activities performed in the hotel. In that respect, the TDABC, with its time equations, is
considered to better reect the resource demands of the activities in the case hotel.
The time unit (in terms of minutes) used for the calculations made under TDABC
were average times. These averages were calculated by taking the average of the times
we obtained through interviews and observations. The staff members in the case hotel
work six days a week and daily working hours vary between seven and 12 hours
depending on the department in which the personnel work. For example, the
receptionists who are employed at front ofce work eight hours and 15 minutes a day,
whereas the administrative personnel such as the accountant and human resource
managers work 12 hours per day. However, the above-mentioned working hours
represent theoretical capacity of the personnel, while we based our TDABC calculations
on the practical capacity.
In implementing the TDABC approach, we did not assign the costs of accounting,
nance, human resource, purchasing and administrating departments directly to the
customer groups because these costs cannot be determined as specic costs for
particular customers in the case hotel. Instead, we considered the ABC cost pools (in
which the costs of support activities were already included) as activity costs for
making calculations under TDABC.
Under the TDABC approach, as it was done under the traditional ABC approach, we
assigned the total cost of the beverage preparation activity-cost pool ($413,782) only
to customer group 8. Likewise, the total cost of the banqueting activity-cost pool is
related solely to customer group 6 and customer group 7. Therefore, we assigned
the cost of the banqueting activity ($468,241) only to customer groups 6 and 7.
Allocation of the costs of front ofce activities under TDABC
The front ofce activity-cost pool consists of direct and indirect costs such as
depreciation, personnel, energy, stationery, telephone, repair and maintenance, and
purchasing. In addition, it includes the costs which are allocated from human resource,
accountingand nance, andadministrating cost centers. The costs gatheredinthe front
ofce cost pool were allocated to the customer segments based on the practical capacity
of the receptionists. This approach is also consistent with the TDABC literature (Kaplan
and Anderson, 2004). Subtasks related to the main front ofce activity are: taking
reservations, giving information to a customer, welcoming the customer, settling the
customer in the room, opening the customers account, monitoring the room in order
to control customers spending, closing the customers account, and accompanying the
customer as he\she leaves the hotel. Indeed, the length of time spent on the front ofce
Customer
protability
analysis
621
activities varies depending on the type of customer coming to the hotel. For instance,
walk-in-customers (group 4) come to the hotel without making reservations, while
customers in group 1, who come to the hotel more frequently than the others, need four
minutes to make a reservation and 2.5 minutes to get information. On the other hand,
it takes totally nine minutes for the personnel to make a reservation (six minutes) and
give information (three minutes) for a customer in group 3. When bar customers
come to the hotel, they only ask where the bar is. Therefore, it takes only 30 seconds for
the personnel to give information to these customers.
The total time needed for the main front ofce activity is obtained by summing up
the times spent on the related subtasks. For example, for a customer clustered in
group 1, the reservation activity starts with taking reservations (four minutes) and
giving necessary information to the customer (2.5 minutes). After the customer arrives
at the hotel, the receptionist welcomes the customer (1.5 minutes), settles the customer
in the room (two minutes), and opens the customers account (1.5 minutes). At the end
of the customers stay, the personnel controls the customers spending and closes
his/her account (four minutes) and accompanies the customer as he/she leaves the hotel
(two minutes). In this case, the total length of time, spent at the front ofce for a
customer in group 1, is 17.5 minutes.
Table III reveals the unit times of consumption of the front ofce activities by
each customer group. For instance, for the customers clustered in group 2, the
receptionists spent 107,352 (5,964 18 minutes) minutes in a year. As Table III shows,
the total time actually needed for performing the front ofce activities during the
study period was 326,600 minutes. Table III also demonstrates the allocation of the
front ofce costs using TDABC.
Through the inclusion of the data presented in Table III (total unit time column of
Table III), we developed the following time equation for estimating the time needed for
performing the front ofce activities:
Total time min for front office activities
17:5
*
#customres
if customer group 1
18
*
#customers
if customer group 2
22
*
#customers
if customer group 3
18
*
#customers
if customer group 4
12
*
#customers
if customer group 5
17
*
#customers
if customer group 6
0:5
*
#customers
if customer group 7
2:5
*
#customers
if customer group 8
The case hotel employs four receptionists to do the front-ofce work and normal
working hours (theoretical capacity) for each person is around eight hours and
15 minutes per day. Each receptionist works six days a week and 26 days in a month.
In this case, normal working hours for one receptionist corresponds to 12,870
8:25 hour 60 minutes 26 days minutes per month and 154,440 minutes per
year. Thus, the theoretical capacity for four receptionists is 617,760 minutes per year.
However, each receptionist spends around 75 minutes for breaks, arrival and
departure, and resting every day. Therefore, each receptionist actually works only
seven hours (which is practical capacity of one receptionist) per day. In this respect,
each receptionist practically supplies about 10,920 minutes per month or 131,040
minutes per year. Therefore, the practical capacity of 4 receptionists is about 524,160
minutes per year. Hence, the practical capacity corresponds to around 85 percent
(524,160/617,760 minutes) of the theoretical capacity.
IJCHM
22,5
622
C
u
s
t
o
m
e
r
g
r
o
u
p
s
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
r
e
s
e
r
v
a
t
i
o
n
a
c
t
i
v
i
t
y
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
i
n
f
o
r
m
a
t
i
o
n
a
c
t
i
v
i
t
y
U
n
i
t
T
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
w
e
l
c
o
m
i
n
g
c
u
s
t
o
m
e
r
(
c
h
e
c
k
-
i
n
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
s
e
t
t
l
i
n
g
c
u
s
t
o
m
e
r
i
n
t
h
e
r
o
o
m
(
c
h
e
c
k
-
i
n
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
o
p
e
n
i
n
g
c
u
s
t
o
m
e
r

s
a
c
c
o
u
n
t
(
c
h
e
c
k
-
i
n
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
c
o
n
t
r
o
l
l
i
n
g
c
u
s
t
o
m
e
r

s
s
p
e
n
d
i
n
g
a
n
d
c
l
o
s
i
n
g
t
h
e
a
c
c
o
u
n
t
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
a
c
c
o
m
p
a
n
y
i
n
g
c
u
s
t
o
m
e
r
(
c
h
e
c
k
-
o
u
t
)
T
o
t
a
l
u
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
A
c
t
i
v
i
t
y
q
u
a
n
t
i
t
y
T
o
t
a
l
m
i
n
u
t
e
s
R
a
t
e
(
$
/
m
i
n
)
A
l
l
o
c
a
t
e
d
c
o
s
t
G
r
o
u
p
1
4
2
.
5
1
.
5
2
1
.
5
4
2
1
7
.
5
5
,
1
2
3
8
9
,
6
5
3
0
.
2
3
8
6
8
2
1
,
3
9
7
G
r
o
u
p
2
5
3
2
2
.
5
1
.
5
2
2
1
8
5
,
9
6
4
1
0
7
,
3
5
2
0
.
2
3
8
6
8
2
5
,
6
2
3
G
r
o
u
p
3
6
3
2
2
.
5
1
.
5
4
3
2
2
1
,
2
5
6
2
7
,
6
3
2
0
.
2
3
8
6
8
6
,
5
9
3
G
r
o
u
p
4
0
4
3
2
1
4
4
1
8
3
,
7
6
7
6
7
,
8
0
6
0
.
2
3
8
6
8
1
6
,
1
8
4
G
r
o
u
p
5
1
4
0
.
5
1
1
.
5
2
2
1
2
1
,
5
0
4
1
8
,
0
4
9
0
.
2
3
8
6
8
4
,
3
0
8
G
r
o
u
p
6
4
3
1
2
1
3
3
1
7
3
1
4
5
,
3
3
8
0
.
2
3
8
6
8
1
,
2
7
4
G
r
o
u
p
7
0
0
.
5
0
0
0
0
0
0
.
5
1
1
,
9
4
0
5
,
9
7
0
0
.
2
3
8
6
8
1
,
4
2
5
G
r
o
u
p
8
2
0
.
5
0
0
0
0
0
2
.
5
1
,
9
2
0
4
,
8
0
0
0
.
2
3
8
6
8
1
,
1
4
6
T
o
t
a
l
2
2
2
0
.
5
1
0
1
2
8
1
9
1
6
1
0
7
.
5
3
1
,
7
8
8
3
2
6
,
6
0
0
7
7
,
9
5
0
Table III.
Costs of front ofce
activities allocated under
TDABC
Customer
protability
analysis
623
The cost per minute of capacity supplied is calculated by dividing the cost of capacity
supplied by the practical capacity of resources (Kaplan and Anderson, 2004). Thus, we
calculated the cost per minute of supplying capacity for the front ofce activities as
$0.23868 [$125,105 (Table I)/524,160 minutes]. Then, the rate of $0.2368 per minute
was multiplied by the total time (in terms of minutes), needed for each customer group,
in order to allocate the costs of the front ofce cost pool to the customer segments.
As revealed by the calculations, around 62 percent [326,600 minutes
(Table III)/524,160 minutes] of the practical capacity of the resources supplied for
the front ofce activities had actually been used for productive work during the
study period. Hence, only 62 minutes ($77,950/$125,105) of the total cost of $125,105
was assigned to the customer groups using TDABC. In this case, the total cost of
unused resources supplied to perform the front ofce activities was computed as
$47,155 ($125,105 2 $77,950).
Allocation of the costs of housekeeping activities under TDABC
The housekeeping activity-cost pool includes depreciation, personnel, energy,
cleaning and laundry, repair and maintenance, storing, and purchasing costs. The
housekeeping cost pool also comprises the costs allocated from accounting and
nance, administrating, and human resource cost centers. The total cost of the
housekeeping activity-cost pool was allocated to the customer segments based on the
practical capacity of the housekeepers. The housekeeping activities are classied as
activities that take place before a customer comes to the hotel and activities after
check-out. These activities constitute several subtasks as follows: cleaning and
vacuuming the rooms, making beds, and replenishing linens. The length of time spent
on the housekeeping activities is almost the same for all customer segments except
for the customers clustered in group 5. The customers in group 5 (football players)
come to the hotel after training and football matches and they leave their rooms dirtier
than the other customers. Therefore, it takes more time and effort for the housekeepers
to clean these rooms when compared to the rooms of other customers.
The total time for the main housekeeping activity is sum of the times spent on the
activities performed before check-in and after check-out. For example, before a
customer (group 1) checks in, the housekeeper controls (three minutes), as well as
cleans and vacuums the reserved room (seven minutes). After the customer settles in,
the housekeeper cleans and vacuums the reserved room during customers stay (four
minutes). After the customer leaves the hotel, the housekeeper cleans and vacuums the
room and replenishes the linens (16 minutes). In this case, the total length of time, spent
on the housekeeping activity for a customer in group 1, is 30 minutes. Table IV
portrays the average unit times of consumption of resources of the main
housekeeping activities by each of the customer groups. Table IV also shows the
amount of costs allocated under TDABC. Based on the gures presented in Table IV,
the total time needed for performing the housekeeping activities was calculated as
566,154 minutes.
The case hotel employs seven housekeepers and each housekeeper works 6.5 hours
per day (excluding time for breaks, meetings, arrival and departure, and resting hours).
In this case, each housekeeper supplies about 10,140 minutes per month and 121,680
minutes per year. Thus, the practical capacity of seven housekeepers is 851,760
minutes per year. We combined the unit time gures in Table IV (total unit time
IJCHM
22,5
624
C
u
s
t
o
m
e
r
g
r
o
u
p
s
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
c
o
n
t
r
o
l
l
i
n
g
t
h
e
r
e
s
e
r
v
e
d
r
o
o
m
(
b
e
f
o
r
e
c
h
e
c
k
-
i
n
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
c
l
e
a
n
i
n
g
a
n
d
v
a
c
u
u
m
i
n
g
t
h
e
r
e
s
e
r
v
e
d
r
o
o
m
(
b
e
f
o
r
e
c
h
e
c
k
-
i
n
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
c
l
e
a
n
i
n
g
t
h
e
r
o
o
m
s
a
n
d
r
e
p
l
e
n
i
s
h
i
n
g
l
i
n
e
n
s
d
u
r
i
n
g
c
u
s
t
o
m
e
r

s
s
t
a
y
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
c
l
e
a
n
i
n
g
t
h
e
r
o
o
m
s
a
n
d
r
e
p
l
e
n
i
s
h
i
n
g
l
i
n
e
n
s
a
f
t
e
r
t
h
e
c
u
s
t
o
m
e
r
l
e
a
v
e
s
t
h
e
h
o
t
e
l
T
o
t
a
l
u
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
A
c
t
i
v
i
t
y
q
u
a
n
t
i
t
y
T
o
t
a
l
m
i
n
u
t
e
s
R
a
t
e
(
$
/
m
i
n
)
A
l
l
o
c
a
t
e
d
c
o
s
t
G
r
o
u
p
1
3
7
4
1
6
3
0
5
,
1
2
3
1
5
3
,
6
9
0
0
.
6
8
1
0
4
,
5
0
9
G
r
o
u
p
2
2
6
4
1
6
2
8
5
,
9
6
4
1
6
6
,
9
9
2
0
.
6
8
1
1
3
,
5
5
5
G
r
o
u
p
3
3
7
4
1
6
3
0
1
,
2
5
6
3
7
,
6
8
0
0
.
6
8
2
5
,
6
2
2
G
r
o
u
p
4
3
7
4
1
8
3
2
3
,
7
6
7
1
2
0
,
5
4
4
0
.
6
8
8
1
,
9
7
0
G
r
o
u
p
5
4
1
1
4
3
1
5
0
1
,
5
7
0
7
8
,
5
0
0
0
.
6
8
5
3
,
3
8
0
G
r
o
u
p
7
2
6
4
1
6
2
8
3
1
4
8
,
7
9
2
0
.
6
8
5
,
9
7
9
T
o
t
a
l
1
7
4
4
2
4
1
1
3
1
9
8
1
7
,
9
9
4
5
6
6
,
1
9
8
3
8
5
,
0
1
5
Table IV.
Costs of housekeeping
activities allocated under
TDABC
Customer
protability
analysis
625
column) and derived the following time equation for the housekeeping activities
(customers clustered in groups 6 and 8 are not included in the equation because these
customers do not stay overnight in the hotel):
Total time min for housekeeping activities
30
*
#customers
if customer group 1
28
*
#customers
if customer group 2
30
*
#customers
if customer group 3
32
*
#customers
if customer group 4
50
*
#customers
if customer group 5
28
*
#customers
if customer group 7
As previously presented in Table I, the total cost of the housekeeping activities was
$579,208. Dividing this amount by the practical capacity of 851,760 minutes per year
resulted in a cost of $0.68 per minutes as the cost of one time unit of the housekeeping
activities. The rate of $0.68/minute was then multiplied by the total minutes, spent for
each customer group, in order to apportion the costs of the housekeeping activities to
the customers.
The use of TDABC reveals that the cost of unused resources, devoted for the
housekeeping activities, was $194,193 [$579,208 (again Table I) 2 $385,015]. This is
due to the fact that, only 66 percent (which was calculated by dividing 566,198 minutes
by the practical capacity of 851,760 minutes) of the practical capacity of the resources
supplied for the housekeeping activities had been actually utilized during the study
period.
Allocation of the costs of food preparation activities under TDABC
The food preparation activity-cost pool basically consists of depreciation, personnel,
energy, stationery, repair and maintenance, purchasing, storing, and food and
beverage costs. This cost pool also comprises the costs allocated from the human
resource, accounting and nance, and administrating cost centers. We allocated the
total cost of the food preparation activity-cost pool to the customer segments based
on the practical capacity of the personnel working in the restaurant. We identied three
common food preparation activities (preparing and serving breakfast, preparing and
serving lunch, and preparing and serving dinner), with each one comprising several
subtasks. These subtasks are: welcoming customers, taking orders, preparing and
cooking foods, serving the foods, waiting while the customers eat, and after-service
cleaning. In calculating the total time spent on the food preparation activities, the
unit time a customer spends on eating is also taken into account because the personnel
of the restaurant must wait until the customer nishes eating.
The unit and total times spent on the subtasks of the preparing and serving
breakfast activity is presented in Table VI. The total time needed for preparing and
serving breakfast activity is sum of the times spent on the subtasks. For example,
when a customer (group 1) comes to the restaurant, the staff members of the restaurant
welcome the customer and take the order (one minute), prepare and serve the food
(ten minutes), wait until the customer nishes eating (40 minutes), and deal with
after-service cleaning once the customer leaves the restaurant (one minute). In this case,
the total length of time, needed to offer breakfast for a customer in group 1, is
52 minutes (Table VI in order to see the total unit times needed to serve breakfast for
other customer groups).
Based on the data presented in Table VI (total unit time needed for breakfast
column of Table VI), we derived the time equation for breakfast as follows (customer
IJCHM
22,5
626
groups 6 and 8 are not included in the equation because these customers do not have
breakfast in the hotel):
Total time min for breakfast 52
*
#customers
if customer group 1
50
*
#customers
if customer group 2
52
*
#customers
if customer group 3
52
*
#customers
if customer group 4
37
*
#customers
if customer group 5
38
*
#customers
if customer group 7
As can be seen in Table VI, the time spent on performing the food preparation
activities varies for different customers. For instance, since a set menu is offered to the
customers in group 5, it takes up less time for the hotel personnel to perform the
subtasks for these customers when compared to others. Based on the data presented in
Table VI (total unit time needed for lunch column in Table VI), we developed the
following time equation to capture the estimate of the time necessary to implement the
preparing and serving lunch activity (Table VI in order to see the total unit times
needed to serve lunch to all customer groups):
Total time min for lunch 95
*
#customers
if customer group 1
81
*
#customers
if customer group 2
83
*
#customers
if customer group 3
94
*
#customers
if customer group 4
42
*
#customers
if customer group 5
Customer groups 6-8 are not included in the above equation because these customers
do not have lunch in the case hotel. Similar to breakfast and lunch, the estimated time
for the preparing and serving dinner activity can be calculated using the following
time equation that we developed based on the data presented in Tables V and VI. In the
equation, customer groups 6-8 are not included because these customers do not have
dinner in the hotel (total unit time needed for dinner column of Table VI):
Total time min for dinner 145
*
#customers
if customer group 1
106
*
#customers
if customer group 2
108
*
#customers
if customer group 3
129
*
#customers
if customer group 4
57
*
#customers
if customer group 5
Based on the gures presented in Table V, the total time needed for the food
preparation activities was calculated as 3,978,510 minutes. On the other hand, the case
hotel employs 30 employees in the restaurant and each employee works eight hours per
day (excluding meeting and resting hours). In this case, each employee supplies 12,480
minutes per month and 149,760 minutes per year. In that respect, the practical capacity
of 30 employees is about 4,492,800 minutes per year. On the other hand, the total amount
of indirect costs of the food preparation activities amounted to $298,434
[$381,349(Table I) 2 $82,915 (total direct food costs, see Table V)] during the study
period. Dividing this amount by the practical capacity of 4,492,800 minutes per year
produced$0.07 as the cost of one time unit of the food preparation activities. The rate of
Customer
protability
analysis
627
C
u
s
t
o
m
e
r
g
r
o
u
p
s
T
o
t
a
l
m
i
n
u
t
e
s
s
p
e
n
t
f
o
r
b
r
e
a
k
f
a
s
t
(
s
e
e
T
a
b
l
e
V
I

c
o
l
u
m
n

)
T
o
t
a
l
m
i
n
u
t
e
s
s
p
e
n
t
f
o
r
l
u
n
c
h
(
s
e
e
T
a
b
l
e
V
I

c
o
l
u
m
n

)
T
o
t
a
l
m
i
n
u
t
e
s
s
p
e
n
t
f
o
r
d
i
n
n
e
r
(
s
e
e
T
a
b
l
e
V
I

c
o
l
u
m
n

u
)
T
o
t
a
l
m
i
n
u
t
e
s
(
s
u
m
o
f
t
h
e
t
o
t
a
l
m
i
n
u
t
e
s
s
p
e
n
t
f
o
r
b
r
e
a
k
f
a
s
t
,
l
u
n
c
h
,
a
n
d
d
i
n
n
e
r
)
R
a
t
e
(
$
/
m
i
n
)
T
o
t
a
l
i
n
d
i
r
e
c
t
c
o
s
t
s
a
l
l
o
c
a
t
e
d
T
o
t
a
l
d
i
r
e
c
t
c
o
s
t
s
T
o
t
a
l
c
o
s
t
G
r
o
u
p
1
1
,
2
5
3
,
6
1
6
6
8
,
6
8
5
4
1
9
,
4
8
5
1
,
7
4
1
,
7
8
6
0
.
0
7
1
2
1
,
9
2
3
3
0
,
4
4
6
1
5
2
,
3
6
9
G
r
o
u
p
2
4
7
7
,
1
5
0
3
,
8
8
8
8
0
,
8
7
8
5
6
1
,
9
1
6
0
.
0
7
3
9
,
3
3
3
9
,
0
1
3
4
8
,
3
4
6
G
r
o
u
p
3
2
6
1
,
1
4
4
1
4
,
6
0
8
5
9
,
6
1
6
3
3
5
,
3
6
8
0
.
0
7
2
3
,
4
7
7
7
,
6
5
4
3
1
,
1
3
1
G
r
o
u
p
4
3
3
3
,
0
0
8
2
7
,
0
7
2
7
4
,
3
0
4
4
3
4
,
3
8
4
0
.
0
7
3
0
,
4
0
5
9
,
4
0
5
3
9
,
8
1
0
G
r
o
u
p
5
1
9
7
,
4
3
2
2
2
4
,
1
1
2
3
3
1
,
5
1
2
7
5
3
,
0
5
6
0
.
0
7
5
2
,
7
1
5
1
8
,
8
8
1
7
1
,
5
9
6
G
r
o
u
p
7
1
5
2
,
0
0
0
1
5
2
,
0
0
0
0
.
0
7
1
0
,
6
4
0
7
,
5
1
6
1
8
,
1
5
6
T
o
t
a
l
2
,
6
7
4
,
3
5
0
3
3
8
,
3
6
5
9
6
5
,
7
9
5
3
,
9
7
8
,
5
1
0
2
7
8
,
4
9
3
8
2
,
9
1
5
3
6
1
,
4
0
8
Table V.
Cost of food preparation
activities allocated under
TDABC (allocation of
costs of food preparation
activities under TDABC)
IJCHM
22,5
628
T
i
m
e
s
p
e
n
t
o
n
s
e
r
v
i
n
g
b
r
e
a
k
f
a
s
t
C
u
s
t
o
m
e
r
g
r
o
u
p
s
(
a
)
Q
u
a
n
t
i
t
y
(
n
u
m
b
e
r
o
f
c
u
s
t
o
m
e
r
s
h
a
v
i
n
g
b
r
e
a
k
f
a
s
t
)
(
b
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
w
e
l
c
o
m
i
n
g
c
u
s
t
o
m
e
r
s
a
n
d
t
a
k
i
n
g
o
r
d
e
r
s
f
o
r
b
r
e
a
k
f
a
s
t
(
c
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
p
r
e
p
a
r
i
n
g
t
h
e
o
r
d
e
r
a
n
d
s
e
r
v
i
n
g
b
r
e
a
k
f
a
s
t
(
d
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
d
u
r
i
n
g
h
a
v
i
n
g
b
r
e
a
k
f
a
s
t
(
e
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
a
f
t
e
r
-
s
e
r
v
i
c
e
c
l
e
a
n
i
n
g
(
f
)
{
b

e
}
t
o
t
a
l
u
n
i
t
t
i
m
e
n
e
e
d
e
d
f
o
r
b
r
e
a
k
f
a
s
t
(
g
)
{
a

f
}
t
o
t
a
l
m
i
n
u
t
e
s
n
e
e
d
e
d
f
o
r
b
r
e
a
k
f
a
s
t
G
r
o
u
p
1
2
4
,
1
0
8
1
1
0
4
0
1
5
2
1
,
2
5
3
,
6
1
6
G
r
o
u
p
2
9
,
5
4
3
1
8
4
0
1
5
0
4
7
7
,
1
5
0
G
r
o
u
p
3
5
,
0
2
2
1
1
0
4
0
1
5
2
2
6
1
,
1
4
4
G
r
o
u
p
4
6
,
4
0
4
1
1
0
4
0
1
5
2
3
3
3
,
0
0
8
G
r
o
u
p
5
5
,
3
3
6
1
5
3
0
1
3
7
1
9
7
,
4
3
2
G
r
o
u
p
7
4
,
0
0
0
1
6
3
0
1
3
8
1
5
2
,
0
0
0
T
o
t
a
l
5
4
,
4
1
2
6
4
9
2
2
0
6
2
8
1
2
,
6
7
4
,
3
5
0
T
i
m
e
s
p
e
n
t
o
n
s
e
r
v
i
n
g
l
u
n
c
h
C
u
s
t
o
m
e
r
g
r
o
u
p
s
(
h
)
Q
u
a
n
t
i
t
y
(
n
u
m
b
e
r
o
f
c
u
s
t
o
m
e
r
s
h
a
v
i
n
g
l
u
n
c
h
)
(
i
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
w
e
l
c
o
m
i
n
g
c
u
s
t
o
m
e
r
s
a
n
d
t
a
k
i
n
g
o
r
d
e
r
s
f
o
r
l
u
n
c
h
(
j
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
p
r
e
p
a
r
i
n
g
t
h
e
o
r
d
e
r
a
n
d
s
e
r
v
i
n
g
l
u
n
c
h
(
k
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
d
u
r
i
n
g
h
a
v
i
n
g
l
u
n
c
h
(
l
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
a
f
t
e
r
s
e
r
v
i
c
e
c
l
e
a
n
i
n
g
(
m
)
{
i

l
}
t
o
t
a
l
u
n
i
t
t
i
m
e
n
e
e
d
e
d
f
o
r
l
u
n
c
h
(
n
)
{
h

m
}
t
o
t
a
l
m
i
n
u
t
e
s
n
e
e
d
e
d
o
r
l
u
n
c
h
G
r
o
u
p
1
7
2
3
7
3
5
5
0
3
9
5
6
8
,
6
8
5
G
r
o
u
p
2
4
8
5
3
4
4
0
2
8
1
3
,
8
8
8
G
r
o
u
p
3
1
7
6
7
3
4
4
0
2
8
3
1
4
,
6
0
8
G
r
o
u
p
4
2
8
8
8
3
4
5
0
2
9
4
2
7
,
0
7
2
G
r
o
u
p
5
5
,
3
3
6
3
8
3
0
1
4
2
2
2
4
,
1
1
2
G
r
o
u
p
7
T
o
t
a
l
6
,
5
7
1
3
0
1
2
5
2
1
0
1
0
3
9
5
3
3
8
,
3
6
5
T
i
m
e
s
p
e
n
t
o
n
s
e
r
v
i
n
g
d
i
n
n
e
r
C
u
s
t
o
m
e
r
g
r
o
u
p
s
(
o
)
Q
u
a
n
t
i
t
y
(
n
u
m
b
e
r
o
f
c
u
s
t
o
m
e
r
s
h
a
v
i
n
g
d
i
n
n
e
r
)
(
p
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
w
e
l
c
o
m
i
n
g
c
u
s
t
o
m
e
r
s
a
n
d
t
a
k
i
n
g
o
r
d
e
r
s
f
o
r
d
i
n
n
e
r
(
q
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
p
r
e
p
a
r
i
n
g
t
h
e
o
r
d
e
r
a
n
d
s
e
r
v
i
n
g
d
i
n
n
e
r
(
r
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
d
u
r
i
n
g
h
a
v
i
n
g
d
i
n
n
e
r
(
s
)
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
n
e
e
d
e
d
f
o
r
a
f
t
e
r
s
e
r
v
i
c
e
c
l
e
a
n
i
n
g
(
t
)
{
p

s
}
t
o
t
a
l
u
n
i
t
t
i
m
e
n
e
e
d
e
d
f
o
r
d
i
n
n
e
r
(
u
)
{
o

t
}
t
o
t
a
l
m
i
n
u
t
e
s
n
e
e
d
e
d
f
o
r
d
i
n
n
e
r
G
r
o
u
p
1
2
,
8
9
3
7
4
5
9
0
3
1
4
5
4
1
9
,
4
8
5
G
r
o
u
p
2
7
6
3
5
3
9
6
0
2
1
0
6
8
0
,
8
7
8
G
r
o
u
p
3
5
5
2
7
3
9
6
0
2
1
0
8
5
9
,
6
1
6
G
r
o
u
p
4
5
7
6
8
4
4
7
5
2
1
2
9
7
4
,
3
0
4
G
r
o
u
p
5
5
,
8
1
6
3
8
4
5
1
5
7
3
3
1
,
5
1
2
G
r
o
u
p
7
T
o
t
a
l
1
0
,
1
2
0
3
0
1
7
5
3
3
0
1
0
5
4
5
9
6
5
,
7
9
5
Table VI.
Cost of food preparation
activities allocated under
TDABC (time spent on
subtasks of the main food
preparation activities)
Customer
protability
analysis
629
$0.07/minute was then multiplied by the total minutes, spent for each customer group, in
order to allocate the costs of the food preparation activities to the customers.
As can be found in Table V, the total amount of the food preparation costs, which
were assigned to all of the customer groups, was $361,408 (including the direct food
costs). This means that, only around 94 percent ($361,408/$381,349) of the total cost of
$381,349 was assigned to the customers using TDABC. In this case, the total cost of
unused resources, supplied for performing the food preparation activities, was
computed as $19,941 ($381,349 2 361,408). This is due to the fact that, only 3,978,510
minutes (Table V) of the practical capacity of 4,492,800 minutes had actually been used
for productive work during the study period.
Allocation of the costs of marketing activities under TDABC
The marketing activity-cost pool consists of depreciation, personnel, repair and
maintenance, advertising, promotion, customer visit, telephone, fax, e-mail, accounting
and nance, human resource, and administrating costs. Advertising costs include costs
of radio and television advertising, as well as the cost of billboards displayed in several
places throughout the city of Mersin. On the other hand, promotion costs include the
cost of gifts (pens, watches, and calendars) presented to the customers. Each gift set
costs around $7.6 per customer. These gifts, however, are not given to all of the
customers staying in the hotel. Since advertising and promotion costs are directly
related to particular customers, we directly assigned these costs to the relevant
customer segments. On the other hand, we allocated indirect marketing costs to the
customer segments based on the practical capacity of the marketing personnel.
The case hotel employs two marketing personnel to make customer visits and related
phone calls. Each person works seven hours per day and six days per week (excluding
meeting, vacation, and resting hours). Thus, each person supplies 10,920 minutes per
month and 131,040 minutes per year. In this case, the practical capacity of two employees
is 262,080 minutes per year. The total cost of customer visits and relevant fax,
telephone, and e-mail costs amounted to $60,112 cost of customer visits $50; 269
cost of fax; telephone; and email$9; 843 during the study period. Dividing this
amount by the practical capacity of 262,080 minutes per year resulted in a cost of
$0.23 per minute as the cost of one time unit. Then, the rate of $0.23/minute was multiplied
by the total minutes, that the marketing personnel spent visiting each customer group, in
order to apportion the costs of the marketing activities to the customer segments.
Table VII demonstrates the allocation of the costs of customer visits under TDABC.
The time spent to make customer visits and perform related subtasks changes
depending on the type of the customer. For example, before making a visit to a customer
in group 1, the marketing staff members phone the customer in order to arrange an
appointment (two minutes). After the appointment is arranged, the staff members give
information about the hotel to the customer via e-mail or fax (two minutes). Then, the
customer is visited (30 minutes). In this case, the total time needed for making a visit to a
customer in group 1 is 34 minutes. On the other hand, it is 52 minutes for a customer in
group 2.
Based on the gures presented in the total unit time column of Table VII,
we derived a time equation to estimate the total time needed for making customer visits
and performing related subtasks (customers in group 4 are not included in the equation
because they are walk-in customers):
IJCHM
22,5
630
C
u
s
t
o
m
e
r
g
r
o
u
p
s
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
a
r
r
a
n
g
i
n
g
a
p
p
o
i
n
t
m
e
n
t
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
g
i
v
i
n
g
i
n
f
o
r
m
a
t
i
o
n
t
o
c
u
s
t
o
m
e
r
U
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
s
p
e
n
t
o
n
v
i
s
i
t
i
n
g
c
u
s
t
o
m
e
r
T
o
t
a
l
u
n
i
t
t
i
m
e
(
m
i
n
u
t
e
)
T
o
t
a
l
n
u
m
b
e
r
o
f
v
i
s
i
t
s
(
a
c
t
i
v
i
t
y
q
u
a
n
t
i
t
y
)
T
o
t
a
l
m
i
n
u
t
e
s
R
a
t
e
(
$
/
m
i
n
.
)
C
o
s
t
o
f
c
u
s
t
o
m
e
r
v
i
s
i
t
s
a
l
l
o
c
a
t
e
d
t
o
c
u
s
t
o
m
e
r
s
A
d
v
e
r
t
i
s
i
n
g
c
o
s
t
s
(
d
i
r
e
c
t
)
P
r
o
m
o
t
i
o
n
c
o
s
t
s
(
d
i
r
e
c
t
)
T
o
t
a
l
c
o
s
t
G
r
o
u
p
1
2
2
3
0
3
4
1
,
6
5
2
5
6
,
1
6
8
0
.
2
3
1
2
,
9
1
8
1
0
,
6
1
4
3
,
2
0
0
2
6
,
7
3
2
G
r
o
u
p
2
4
3
4
5
5
2
1
0
0
5
,
2
0
0
0
.
2
3
1
,
1
9
6
3
,
1
8
5
3
6
9
4
,
7
5
0
G
r
o
u
p
3
2
3
4
5
5
0
2
4
0
1
2
,
0
0
0
0
.
2
3
2
,
7
6
0
2
,
1
2
3
5
0
0
5
,
3
8
3
G
r
o
u
p
4
0
0
0
0
0
0
0
.
2
3
0
1
,
0
6
2
3
1
1
,
0
9
3
G
r
o
u
p
5
3
2
4
0
4
5
1
6
7
2
0
0
.
2
3
1
6
6
2
,
1
2
3
1
1
5
2
,
4
0
4
G
r
o
u
p
6
a
n
d
7
4
3
4
3
5
0
4
0
2
,
0
0
0
0
.
2
3
4
6
0
2
,
1
2
3
9
2
2
,
6
7
5
G
r
o
u
p
8
2
2
2
1
2
5
1
5
0
3
,
7
5
0
0
.
2
3
8
6
3
3
8
,
7
6
9
3
1
3
9
,
6
6
3
T
o
t
a
l
1
7
1
5
2
2
4
2
5
6
2
,
1
9
8
7
9
,
8
3
8
1
8
,
3
6
3
5
9
,
9
9
9
4
,
3
3
8
8
2
,
7
0
0
Table VII.
Cost of marketing
activities allocated under
TDABC
Customer
protability
analysis
631
Total time min needed for making customer visits
34
*
#customers
if customer group 1
52
*
#customers
if customer group 2
50
*
#customers
if customer group 3
45
*
#customers
if customer group 5
50
*
#customers
if customer groups 6 & 7
25
*
#customers
if customer group 8
Table VII summarizes the dollar amount of the costs of advertising, promotion, and
customer visits which were assigned to each customer group using TDABC. Since
79,838 minutes of the practical capacity of 262,080 minutes had actually been used for
making customer visits, around 30 percent (79,838 of 262,080 minutes) of the
marketing resources had been used for productive work during the study period. In
this case, the total cost of unused resources devoted for the marketing activities was
computed as $41,750 ($124,450 2 $82,700).
3. Interpretation of the results
In this case study, we have developed a TDABC model for the case hotel in order to
implement CPA. Table VIII compares the protability gures computed by means of
the traditional and TDABC systems. The gures in the total cost column in the
traditional ABC section of Table VIII are taken directly from the total column of
Table II. The gures calculated for customer groups 1, 2, 3, 4, and 5 in the total cost
column in the TDABC section of Table VIII are obtained by summing up the gures in
the total cost columns in Tables III-VII. The total cost gure for customer group 6
and customer group 7 is obtained by adding up the relevant gures in the total cost
columns in Tables III-VII and the total cost of banqueting activity-cost pool ($468,241).
On the other hand, the total cost gure for customer group 8 is found by adding up
the relevant gures in the total cost columns in Tables III and VII to the total cost of
beverage preparation activity-cost pool ($413,782).
In Table VIII, the revenue gures for customer groups 1, 2, 3, 4, and 5 are obtained by
summing up the restaurant and accommodation revenues. For example, the total amount
of revenue ($948,385) generated from customer group 1 is obtained by summing up
accommodation ($807,602) and restaurant revenues ($140,783). The total amount of the
restaurant revenue ($140,783) is calculated by totaling breakfast, lunch, and dinner
revenues. Since the banqueting activities are organized for only customer group 6
Traditional ABC TDABC
Customer
groups Revenue Costs Prot
Relative
protability Costs Prot
Relative
protability
Group 1 948,385 563,780 384,605 0.32 305,007 643,378 0.42
Group 2 216,433 189,980 26,453 0.03 192,274 24,159 0.02
Group 3 146,887 149,598 22,711 20.02 68,729 78,158 0.05
Group 4 315,117 115,219 199,898 0.15 139,057 176,060 0.12
Group 5 160,087 170,941 210,854 20.01 131,688 28,399 0.02
Group 6
and 7 942,892 481,010 461,882 0.40 497,750 445,142 0.29
Group 8 576,000 421,607 154,393 0.13 454,591 121,409 0.07
Total 3,305,801 2,092,135 1,213,666 1.00 1,789,096 1,516,705 1.00
Table VIII.
Comparison of
protability gures
calculated under
traditional and TDABC
IJCHM
22,5
632
and customer group 7, the total amount of the banqueting revenues ($942,892) is related
solely to these customer groups. The amount of the bar revenues generated from
customer group 8, on the other hand, amounts to $576,000.
As Table VIII reveals, customer group 3 and customer group 5 who are
determined unprotable customer segments using a traditional ABC method are found
protable using a TDABC method. For example, the use of a traditional ABC method
demonstrates that customer group 5 (sports clubs) shows $10,854 of loss. On the other
hand, the calculations made with the TDABC method reveal that customer group 5
generates $28,399 of net prot. Moreover, in Table VIII we can observe that, protability
gures computed using a TDABC approach are higher for all the customer groups when
they are compared to the ones calculated using a traditional ABC system.
This case study also highlights the difference between the capacity supplied and the
capacity used in the case hotel. In this case study, we found that $303,039 ($2,092,1352
$1,789,096) cost of unused capacity exists in the case hotel. Of the total dollar amount of
the cost of unused capacity, $41,750 represents the cost of unused resources kept for the
marketing activities. Likewise, the cost of unused resources, which are related to the
activities in the restaurant, is $19,941. On the other hand, $194,193 and $47,155 represent
the costs of unused resources devoted for the housekeeping and front ofce
activities, respectively.
The TDABC analysis in the case hotel reveals that only 66 percent of the resources
supplied for the housekeeping activities (566,198 of 851,760 minutes), 62 percent of the
resources suppliedfor the front ofce activities (326,600 of 524,160 minutes), 89 percent
(3,978,510 of 4,492,800 minutes) of the resources supplied for the food preparation
activities, and 30 percent (79,838 of 262,080 minutes) of the resources supplied for the
marketing activities had been actually utilized during the period of the study.
4. Conclusions and managerial implications
What does this all mean for the hospitality industry? First, there is support for the
TDABC model which incorporates activities, cost of resources supplied for the
activities, practical capacity of the resources devoted for performing the activities, and
the unit times spent on these activities. In that respect, the study produced valuable
information which will support various managerial decision makings. First, these
ndings will allow the managers of the hotel to tailor the cost system strategies more
effectively. Each of the activities and unit times are adaptable for a TDABC model,
allowing the managers of the hotel to determine where they need to improve their
productivity and see how these improvements will affect the external value and overall
protability of the organization. It seems that ABC is a necessary, efcient, but not
sufcient measurement tool for protability analysis. More importantly, it ignores the
importance of the cost of unused resources assigned to different customer segments.
Moreover, the managers of the hotel should remember that tracing the cost of some
activities to customers using a traditional ABC approach may not be feasible due to the
diversity in the use of resources by various customers. If the managers of the hotel
want to install and implement a TDABC method for CPA in the subsequent periods in
order to overcome the limitations of a traditional ABC system, all they need is obtain
estimates for the costs of the activities that are performed in the hotel, as well as
average times needed to perform these activities. The estimates of the times, which are
needed for performing the activities, can be obtained via the time equations we
Customer
protability
analysis
633
developed in this case study. In that respect, based on the practical capacity of the
resources supplied, the costs of the activities, and the time estimates for the activities,
the hotel management will be able to execute CPA via a TDABC model.
In implementing a TDABC model, the cost of activities should be divided by the
practical capacity of the resources, which is expressed as the amount of time that
employees (i.e. receptionists and housekeepers) can work, in order to compute the cost
per time unit for each activity. Costs then can be assigned to customers by multiplying
the cost per time unit by the time needed to perform the activity for each customer. The
time equations will also provide the management with a chance to update the TDABC
system quickly without any need for repetitive interviews. In this regard, not only will
the use of a TDABC system provide the managers with an insight into more accurate
CPA information, it will also make the unused capacity visible.
Second, there is a clear evidence indicating that the front ofce, housekeeping, food
preparation, and marketing departments have idle capacity. It is a well-known fact that
the hospitality industry is labor intensive and that personnel have a major impact on
the protability of the hotel. In this case, the managers of the hotel should concentrate
on uncovering appropriate strategies for maximizing capacity utilization. For instance,
one starategy they can utilize might be to provide the personnel with necessary
training and motivation to follow and answer the needs and expectations of the
customers in order to attract more customers and to eliminate the idle capacities in the
future. Depending on the expected chages in the customer mix in the subsequent
periods, the use of a TDABC system with its time equations will provide managers
with an opportunity to estimate the capacity requirements of different departments.
Thus, the time equations of TDABC will assist the managers in understanding
whether it will be necessary to switch the personnel from one department to the next, in
order to balance capacities among departments. Obviously, with a TDABC approach,
the managers of the hotel will be better equipped to understand whether capacity is
enough to face forthcoming demands. This will allow better manpower planning,
which will in turn foster effective utilization of human resources. With better
manpower planning, the managers will be in a better position to recruit the right type
of employees who can be a good match with the needs of the hotel, as well as they will
be able to estimate training needs of the personnel more effectively. This will in turn
enable appropriate training programs to be implemented accordingly. Arranging
appropriate training programs will assure that the training budget is used efciently.
At the same time, better manpower planning may also allow the hotel management to
be in a better position to provide long-term contracts to the employees, hence reduce
personnel turnover. This in turn can lead to increased job satisfaction and
organizational commitment among employees. Furthermore, the use of time equations
will provide the hotel management with an opportunity to see the time demands of the
activities. This will aid the managers in identfying which activities consume much
time, taking necessary actions in order to reduce the amount of time required by these
activities, and ultimately reducing the costs of serving customers.
Third, the managers, using customer protability information gained through
TDABC, will be in a better position to determine which strategy (such as focus,
differentiation, and cost leadership) is useful for maximizing the overall protabilityof the
hotel. With the help of the results of this case study analysis, the managers of the hotel can
now better distinguish protable customers from unprotable ones. Obviously, this will
IJCHM
22,5
634
result in better-informed managerial decisions. In that respect, the hotel management
should tailor appropriate programs for managing customer relationships. For instance,
the managers of the hotel shouldimplement different promotional programs or campaigns
in order to attract more protable customers during different seasons. The hotel can
attract low-prot customer groups during low seasons and may provide services to high
income groups at peak times. Additionally, by using a customer relationship marketing
system, the hotel personnel can keep track of customers demands and what action has
been taken on these demands by other hotels. The calculations made under the
conventional ABCsystemreveal that some customer groups (customer groups 3 and5) are
unprotable. This is due to the fact that, these customers are burdened with the cost of
unusedcapacity. Inthis case, based onthe ABCanalysis, the managers of the hotel may be
temptedto consider raisingprices or cuttingcosts bychangingservice concepts inorder to
turn unprotable customers into protable ones. However, raising prices and changing
service concepts, whichmayinturnresult inchanges inthe customers qualityperceptions
of the hotel, and possibly lead to a loss of customers to competitors. On the other hand,
contrary to the traditional ABC, the TDABC cost analysis shows that prices set for
these customer groups truly cover the costs of serving them, despite the fact that these
customers are low-prot contributors. Based on this nding, the managers of the hotel
should be alerted to revisit the managerial strategies concerning these customers and
tailor newstrategies accordingly. According to TDABC CPAoutcomes, customer groups
1, 6, and 7 are high prot contributors for the case hotel. Thus, the hotel management
should develop necessary marketing strategies in order to increase guest loyalty from
these customer groups. This will subsequently enable the hotel to subsidize low prot
contributors (i.e. customer groups 2, 3, and 5) with prots generated from the high-prot
contributors. Additionally, having obtained the results of the TDABC analysis, the hotel
management will better determine the customer mix which will generate the highest
returns in the future.
The ndings of this study have been generated from a case study in a single
four-star hotel in Turkey. Although the results of this study cannot be generalized to
the hotel industry as a whole, it may shed light to the insights of cost practices in hotels
from a TDABC model perspective. For further research, this study can be replicated in
other hotels both in Turkey and abroad and also at different star-ratings to see if the
results would be generalizable. It would be very interesting for managers of other
hotels to identify protable and unprotable customers and their own idle capacity
using a TDABC approach. Furthermore, the TDABC method should be tested in other
organizations (i.e. restaurants) in the hospitality industry in order to provide a better
understanding of the application of TDABC in the tourism sector.
References
Altinay, L. and Paraskevas, A. (2008), Planning Research in Hospitality and Tourism,
Butterworth-Heinemann, Oxford.
Baird, K.M., Harrison, G.L. and Reeve, R.C. (2004), Adoption of activity management practices:
a note on the extent of adoption and the inuence of organizational and cultural factors,
Management Accounting Research, Vol. 15 No. 4, pp. 383-99.
Bryman, A. and Bell, E. (2007), Business Research Methods, 2nd ed., Oxford University Press,
Oxford.
Customer
protability
analysis
635
Cooper, R. (1988), The rise of activity based costing part two: when do I need an activity-based
costing system, Journal of Cost Management, Vol. 2 No. 3, pp. 41-8.
Cooper, R. (1990), Cost classication in unit based and activity-based manufacturing cost
systems, Journal of Cost Management, Vol. 4 No. 3, pp. 4-14.
Cooper, R. and Kaplan, R. (1991), Prot priorities from activity-based costing, Harvard
Business Review, Vol. 69 No. 3, pp. 130-5.
Cooper, R. and Kaplan, R. (1992), Activity-based systems: measuring the costs of resource
usage, Accounting Horizons, Vol. 6 No. 3, pp. 1-11.
Cotton, B. (2005), Relevance redux management accounting today, Chartered Accountants
Journal, April, pp. 6-12.
Demeere, N., Stouthuysen, K. and Roodhooft, F. (2009), Time-driven activity-based costing in an
outpatient clinic environment: development, relevance and managerial impact, Health
Policy, Vol. 92 Nos 2/3, pp. 296-304.
Dittman, A.D., Hesford, W.J. and Potter, G. (2008), Management accounting in the hospitality
industry, Handbooks of Management Accounting Research, Vol. 3, pp. 1353-69.
Drake, A., Haka, S.F. and Ravenscroft, S.P. (2001), An ABC simulation focusing on incentives
and innovation, Issues in Accounting Education, Vol. 16, pp. 443-5.
Everaert, P., Bruggeman, W. and Creus, G.D. (2008), Sanac Inc.: from ABC to time-driven ABC
(TDABC) an instructional case, Journal of Accounting Education, Vol. 26 No. 3,
pp. 118-54.
Fay, C., Rhoads, R. and Rosenblatt, R. (1976), Managerial Accounting for the Hospitality Service
Industry, Brown Company Publishers, Dubuque, IA.
Gunasekaran, A. and Sarhadi, M. (1998), Implementation of activity-based costing in
manufacturing, International Journal of Production Economics, Vols. 56/57, pp. 231-42.
Innes, J. (1999), The use of activity-based information: a managerial perspective, Management
Accounting, Vol. 77 No. 11, pp. 81-3.
Kaplan, R. and Anderson, S.R. (2004), Time-driven activity based costing, Harvard Business
Review, Vol. 82 No. 11, pp. 131-8.
Kaplan, R. and Anderson, S.R. (2007a), The innovation of time-driven activity based costing,
Journal of Cost Management, Vol. 21 No. 2, pp. 5-15.
Kaplan, R. and Anderson, S.R. (2007b), Time-driven Activity based Costing: A Simpler and More
Powerful Path to Higher Prots, Harvard Business School Press, Boston, MA.
Kaplan, R. and Cooper, R. (1998), Cost and Effect: Using Integrated Cost Systems to Drive
Protability and Performance, Harvard Business School Press, Boston, MA.
Kaplan, R. and Narayanan, V.G. (2001), Customer Protability Measurement and Management,
Harvard Business School Press, Boston, MA, May, pp. 1-12.
Lee, T.W. (1999), Using Qualitative Methods in Organizational Research, Sage, Thousand Oaks, CA.
Noone, B. and Grifn, P. (1999), Managing the long term prot yield from market segments in a
hotel environment: a case study on the implementation of customer protability analysis,
International Journal of Hospitality Management, Vol. 18 No. 2, pp. 111-28.
Nordling, C.W. and Wheeler, S.K. (1992), Building a market-segment accounting model to
improve prots, The Cornell Hotel & Restaurant Administration Quarterly, Vol. 33 No. 3,
pp. 29-36.
Pellinen, J. (2003), Making price decisions in tourism enterprises, International Journal of
Hospitality Management, Vol. 22 No. 2, pp. 217-35.
IJCHM
22,5
636
Pernot, E., Roodhooft, F. and Abbeele, V.A. (2007), Time-driven activity-based costing for
inter-library services: a case study in a university, The Journal of Academic Librarianship,
Vol. 33 No. 5, pp. 551-60.
Potter, G. and Schmidgall, R. (1999), Hospitality management accounting: current problems and
future opportunities, Hospitality Management, Vol. 18 No. 5, pp. 387-400.
Raab, C. and Mayer, K. (2003), Exploring the use of activity-based costing in the restaurant
industry, International Journal of Hospitality & Tourism Administration, Vol. 4 No. 2,
pp. 79-96.
Raab, C. and Mayer, K. (2007), Menu engineering and activity-based costing: can they work
together in a restaurants?, International Journal of Contemporary Hospitality
Management, Vol. 19 No. 1, pp. 43-52.
Raab, C., Mayer, K., Ramdeen, C. and Ng, S. (2005), The application of activity-based costing in a
Hong Kong buffet restaurant, International Journal of Hospitality & Tourism
Administration, Vol. 6 No. 3, pp. 11-26.
Raab, C., Mayer, K., Shoemaker, S. and Ng, S. (2009), Activity-based pricing: can it be applied in
restaurants, International Journal of Contemporary Hospitality Management, Vol. 21 No. 4,
pp. 393-410.
Raaij, V.E.M., Vernooij, M.J.A. and Triest, S.V. (2003), The Implementation of customer
protability analysis: a case study, Industrial Marketing Manegement, Vol. 32 No. 7,
pp. 573-83.
Rotch, W. (1990), Activity-based costing in service industries, Journal of Cost Management,
Summer, pp. 4-14.
Ryan, B., Scapens, R.W. and Theobald, M. (2007), Research Method and Methodology in Finance
and Accounting, 2nd ed., Thomson, Stamford, CT.
Tharenou, P., Donohue, R. and Cooper, B. (2007), Management Research Methods, Cambridge
University Press, Cambridge.
Yin, R.K. (1994), Case Study Research: Design and Methods, Sage, Newbury Park, CA.
Zeithaml, V.A. and Bitner, M.J. (1996), Service Marketing, McGraw-Hill, New York, NY.
Further reading
Cooper, R. and Kaplan, R. (1988), Measure costs right: make the right decisions, Harvard
Business Review, September-October, pp. 96-103.
Corresponding author
Ilhan Dalci can be contacted at: ilhan.dalci@emu.edu.tr
Customer
protability
analysis
637
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com
Or visit our web site for further details: www.emeraldinsight.com/reprints
Reproducedwith permission of thecopyright owner. Further reproductionprohibited without permission.