One of the reasons is that Fairview Manor complex is sold in modern commercial market which is highly competitive. Customers now come to the products that satisfy their own requirement, so companies need to manage the costs effectively to give out a reasonable price level. Moreover, the overheads are high, especially in depreciation, so the traditional way of costing is not suitable anymore. Based on these conditions, we chose to use new costing approach.
In addition, this project focuses on the costs to build up and maintain the complex, not being about pre or post production phase, so the “total life-cycle costing” approach is not useful. Basically, “activity-based costing” is the most suitable approach to apply.
Activity-based costing is a costing model that identifies activities in an organization and assigns the costs of each activity resource to all products and services according to the actual consumption by each. It assigns more indirect costs (overheads) into direct costs. In this approach, the overheads do not just occur but are caused by activities. An overhead cost pool is established for each cost driver, which means they are linked to a particular activity.
By following this approach, we can precisely estimate the costs of each apartment so that we can also identify and eliminate those that are unprofitable to lower the prices of those that are overpriced. Most of these calculations are correct.
- Financial Estimation and Recommendation
- Fixed costs
Assuming that the costs for building and maintaining every room are equal, then all fixed costs will be apportioned on the basic of total rooms.
- Weekly variable cost
Variable costs per apartment = Variable costs per room x Number of rooms + Variable costs per occupant x Maximum number of occupants
- Price and breakeven points
- Price
Based on the data about prices of competitors for similar apartments and the analysis of market demand as well as the complex itself, we bring out the prices for Fairview Manor apartments. Generally, they are cheaper than the ones of competitors to impulse revenue.
Firstly, there are only a few Studio apartments and customers will not have many choices if they decide to buy this type, so the price is not necessary to be too low to attract buyers. The price range is narrow and just a little cheaper than competitors’.
Besides, One Bedroom apartment which is the main products of the company has the total number of 54. This is because people’s demand for this form is much higher than the rest. Then, the competition among businesses to sell these apartments is stronger. Therefore, we lower One Bedroom price so that it will highly marketable. This price will be suitable for many people, especially couples who want to spend the holiday together. In addition, the range of price is much wider than other types, so we can adjust it in the most flexible way when people’s demands are changed according to season.
Finally, Two Bedroom apartments are convenient and economical for a group of customers who wants to go on a holiday together. Potential customers for this form are families who have from 4 to 6 members. Buying a Two Bedroom apartment is much cheaper than buying two One Bedroom apartments, even than two Studio ones. However, the quantity of these apartments is not big while the demand is high. For these reasons, the price for this type is equivalent to competitors’ in normal weeks and higher in special occasions.
- Breakeven points
- Maximum profit
Total apartment weeks for sale = Number of apartments x 52
Maximum profit = Price x (Total week for sale – Breakeven point)
- Weekly rental apartments
- Difference between buying and renting
Buyers have the ownership in a week each year over 30 years. They can pay weekly price for their apartments every years or pay “one-off” price in the year they buy. However, though they choose the first or second way, the price is fixed and they do not need to worry about the increase of price when the market goes up.
When they buy timeshare apartments, these apartments is counted as their assets and appeared at their private financial report. This also means they have to pay more expenses each year in real estate taxes and maintenance costs.
Renting is more flexible than buying because people do not have responsibility with the apartments they rent and they also do not need to consider about any long-term spending. The transaction can take place quickly. Renters do not have the ownership of these apartments and owners still have to pay real estate taxes by themselves.
However, the price for renting is not fixed. It can be changed according to the the market demand and the development of the economy. Because of the increase in property value and living standard, the hire is usually risen every year.
- Criteria for pricing the hire
People have different demands in different seasons, so the price should be suitable to have the best result. Usually people have high interest in tourism in three situations. The first is that they have the days off, the second is that they want to celebrate a special holiday and the third is that they want to take part in a local festival in a particular area. According to them, the price for renting holiday apartment will be more expensive in the summer, annual occasions like Christmas and the week that areas nearby has famous festivals.
In normal weeks, if the hire is high, there will be no customers. However, if the company does not change the price in the time that people are willing to pay money, it will lose a big profit.
The price needs to cover all the costs as well as make profit. Because the company has to pay real estate taxes for rental apartments, the expenses will increase. Also to keep the business continue, they must spend both money and effort, which is required more than just selling apartments. To balance these things, the hire must be higher than the price for buying the same kind of apartment.
- Profit margin company wants to achieve
Depending on the financial goal of the company, the price can be changed to reach the desirous level. However, this number still has to be reasonable. If the hire is too high, no customers want to sign the contract with the company.
- Change of market and demand
The changes in society and economy will affect directly customers’ demands, requirements and acceptance. In crisis time people will not spend much in things like this and the company will need to lower the price hoping it will invite more customers. By contrast, when everything is good - the market goes up and so does living standard – people can accept that the service fee increase along with the quality, then the company still have many customers though the hire they charge can be high.
- Number of rental apartments
The more rental apartments company retains, the more expenses they need to pay. Not only the real estate taxes but also the fees to manage the work of hiring need to be considered. They need to keep advertising their apartments for new customers, employing the staff to sign renting contracts and so on while the apartments that belong to buyers do not require these works.
However, property value also grows ceaselessly. On the one hand, the grow in the world population leads to the lack of land affecting land price so much. On the other hand, service sector is accounted for bigger and bigger proportion in the economy, which opens an opportunity that the company can charge their hire much higher. Because the apartments can increase in both its own value and the profitability by renting, retaining them will have positive effects in long-term.
After thinking carefully about all aspects, we have final decision in how many apartments is for sale and for hire.
- Price
Because the larger the land is, the more taxes company has to pay, the differences between hire and buying price will be changed in relationship with the type of apartment. Depending on above factors, we decide that the hire will be £10 more expensive than weekly price for selling with Studio apartments, £15 with One Bedroom apartments and £25 with the last ones. Following is the detailed price list.
The score is used to evaluate the demand level in different time period of year. Highest score is 3 which refers to the period with strongest demand and the lowest score is 0 - no special factor to attract customer.
- Conclusion
Financial data are calculated based on many aspects influencing the work of pricing in order to persuade people to become PLC’s customers in timeshare market. Apartments for sale and for hire are clarified clearly as long as explained carefully. These calculations and recommendations can be used by the Marketing Director of PLC to give the final decision about apartments’ price.
- References
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Do Thi (March 31, 2010), Timeshare – New property service, Retrieved from on March 31, 2010
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Dulichbui, Vacation Ownership, Retrieved from
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Wikipedia (December 3, 2010), Timeshare, Retrieved from on December 3, 2010
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Kenh 5 (June 7, 2005), Timeshare, Retrieved from on June 7, 2005
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Nguyen Thanh Vu (August 3, 2009), Timeshare, Retrieved from on August 3, 2009
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Wikipedia (December 5, 2010), South West England, Retrieved from on December 5, 2010
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Wikipedia (November 19, 2010), West Country, Retrieved from on November 19, 2010
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Wikipedia (December 12, 2010), Glastonbury Festival, Retrieved from on December 12, 2010
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Wikipedia (November 26, 2010), West Country Carnival, Retrieved from on November 26, 2010
