• Average Daily Rate (ADR) – A key rooms department operating ratio. Rooms revenue divided by numbers of room sold. Also called average room rate.
• Bad Debts – An expense incurred due to failure to collect accounts receivable.
• Breakeven point – The level of sales volume at which total revenues equal total costs.
• Contribution Margin – Sales less cost of sales for either an entire operating department or for a given product; represents the amount of sales revenue that is contributed toward fixed costs and/or profits.
• Contribution Margin Ratio – The contribution margin divided by the selling price. Represents the percentage of sales revenue that is contributed toward fixed costs and/or ratio.
• Controllable costs – Costs cover which a manager is able to exercise judgment and hence be able to keep within predefined boundaries or limits.
• Cost Justification – The process of justifying expenditures by providing documentation showing that the expected return on investments exceeds the expense incurred.
• Cost of Goods Sold – Expense incurred in procuring the goods (rather than the services) that are to be resold in the operation of business.
• Direct Expenses – Expense related directly to the department incurring them and consisting of cost of sales, payroll and related expense, and other expenses.
• Fixed Charges – A category of expense reported on the income statement that is related to decisions outside the area of control of operating management and consisting of rent, property taxes, insurance, interest, management fees, and depreciation and amortization.
• Fixed Costs – Costs which remain constant in the short run even though sales volume varies; example of fixed costs includes salaries, rent expense, insurance expense and so on.
• Food Cost Percentage – A ratio comparing the cost of food sold to food sales; calculated by dividing the wholesale dollar amount of total sales by the retail dollar amount of total sales.
• House Profit – Amount left after the common operating expenses have been deducted form revenue; used to cover the fixed capital expenses and provide net profit.
• Inventory Turn Over – A ratio how quickly a hospitality operation’s inventory is moving from storage to productive use; calculated by dividing the cost of products (e.g., food or beverages) used by the average product (e.g., food and beverages) inventory.
• Labor Cost Percentage – A ratio comparing the labor expense for each department by the total revenue generated by the department; total labor cost by the department divided by department revenues.
• Mark up – An approach to pricing of goods and services which determines retail prices by adding a certain percentage to the cost of goods sold. The mark-up is designed to cover all non-product costs (e.g., Labor, utilities, supplies, interest expense, taxes, etc.) and also cover the desired profit. Ingredient mark-up is based on all ingredients.
• Menu Engineering - A method of menu analysis and food pricing that considers both the profitability and popularity of competing menu items.
• Property and Equipment – Fixed assets including land, buildings, furniture, equipment, construction in progress, leasehold improvements, and property such as china, glassware, silver, linens, uniforms, etc.
• Purchase Order – Order for material sent by the purchasing department.
• Purchase Requisition – A form used to request the purchasing department to purchase merchandise or other property.
• Purchasing Agent – A staff within a hospitality operation providing assistance in the selection and procurement of products (e.g. food and beverages) by gathering product information, screening potential suppliers, and offering recommendations about products to be used and purchase specifications to be developed.
• Relevant Cost – Costs which must be considered in a decision-making situation; relevant costs must be differential, future and quantifiable.
• REVPAR – Revenue per available room. A combination of paid occupancy percentage and average daily rate. Rooms’ revenues divided by available revenues or alternatively, paid occupancy percentage times average daily rate. The revenue per available room, or REVPAR, is the best way a hotel has to compare its competition and is a reflection of the way occupancy and average daily rate (ADR), which is an occupancy ratio derived by dividing net revenues by the number of rooms sold, are being managed. REVPAR can alert the manager to how well the reservations department is selling during slow periods and/or how successfully reservationists are upselling hotel guests to higher rated rooms or packages during peak periods.
• Segregation of Duties – An element of internal control systems in which different personnel are assigned different functions of accounting, custody of assets and production; the purpose is to prevent and detect errors and/or theft.
• Variable costs – cost which change proportionately with sales volume.
• Yield Management – Selling rooms in a way that maximizes total revenues. Before selling a room in advance, the hotel considers probability of being able to sell the room to other market segments that are willing to pay higher rates.
• Fair Market Share - Fair Market Share is the ratio of a hotel’s available guest rooms and the total number on the market. For example, if there are 1,600 rooms in the competitive market, with 300 belonging to the Stutts Hotel, the fair market share of the Stutts Hotel would be 300 divided by 1,600 or approximately 19 percent. The Stutts Hotel might achieve more or less than 100 percent of its fair market share, depending on its competitive strengths and weaknesses. The actual market share is calculated by multiplying the number of rooms by the occupancy percentage and then dividing the number of occupied rooms by the total number of occupied rooms in the competitive room set. For example, if the Stutts Hotel achieved 80 percent occupancy, it would have 240 occupied rooms. If the total competitive room set of 1,600 rooms was averaging 1,200 occupied rooms, the hotel would have an actual market share of 20 percent (240 divided by 1,200)
• Market Penetration and Competitive Indexing – While less valuable is projecting occupancy, market penetration and competitive indexing are useful in ranking the occupancy of hotels in a competitive market. Market penetration is a measure of how well hotel is attracting occupancy rooms. Market penetration is calculated by dividing the hotel’s actual market share by its fair market share. If the Stutts Hotel has an actual market share of 20 percent and a fair market share of 20 percent, it has market penetration of 1.0. To be competitive a hotel should aim to keep its market penetration above 1.0. The competitive index of a hotel reflects the number of days per year that a single room in a hotel is occupied. For example, if the occupancy rate of Hotel A is 80 percent, that of Hotel B is 70 percent, and that of Hotel C is 81 percent, the three hotels can be ranked by multiplying their respective percentages by 365 days (number of days in an operating year).In the above example, the competitive index is follows: Hotel C, 295; Hotel A, 292; and Hotel B, 255.

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