Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 56

Customer Profitability Analysis: Luxury Hotel Industry The luxury hotel chain Ritz-Carlton introduced a system called “Mystique” that collects information about its customers from employees and staff at the hotel. The information is used to personalize the services provided to each guest. For example, a bottle of the guest’s favorite type of wine would be placed in the room without the guest having to request it. Similarly, the type of fruit a guest prefers will be waiting in the room on arrival. The information is available throughout the Ritz system so that when the guest checks into any Ritz- Carlton hotel, the special treatment is available. Other hotel chains such as Marriott, Hilton, and Hyatt have similar programs

Required

1. How do these information-gathering programs help the hotels become more competitive? What is the strategic role of these programs?

2. Do you see a role for activity-based accounting for these firms, as it relates to their information gathering and customer service?

3. What ethical issues, if any, do you see in the information-gathering systems?

Step 1 of 5

Activity Based costing:

Activity based costing is a method of allocating overhead cost based on the cost drivers that directly affect the activity of the cost. These cost drivers are directly related to the activity and hence, provide the better results and using a single cost driver.