Siesta Inn Case

CONTRAL OBJECTIVES

Siesta Inns, Inc. (Siesta) set up a central reservation system that includes system’s hardware, software, and employee training. The control objectives of the central telephone reservation system focus on fairness, profitability and motivation. Because Siesta started to allocate the costs of central reservation system, it needs to ensure that the allocation is fair to all the motels. Also, the new system should bring more profits to Siesta. Siesta attempts to motivate the system and motel managers to have excellent performance.

DECISION RIGHTS OF MANAGERS

The system manager makes decision on work schedule for part-time reservationists. Also, the system manager budgets the annual system operating costs with company’s controller. The reservation system is under a cost center. Siesta evaluates the system manager based on his/her capacity for controlling system operating costs; therefore, the system manager likely makes the decision that saves the costs in order to obtain better performance and evaluation. On the other side, the individual motels are profit centers. The motel managers have responsibilities to establish room rates and negotiate locally for most operating costs, such as motel employees, food, and supplies. In addition, the motel managers involve in direct promotional activities, including tourism, conventions, and business trade, in order to attract more customers for their motels. The motel managers received fixed salary as well as a bonus based on a percentage of individual motels’ operating income; therefore, the bonus motivates them to make decisions that can increase the profits of individual motels.

COST ALLOCATION

According to the annual numbers of room nights, average rates per room night, and average occupancy, Siesta computes the total revenues of respective motels in various cities, including El Paso, Albuquerque, Phoenix, Tucson, and Los Angeles: $1,192,800; $1,636,800; $2,997,000; $3,760,000; $6,451,200....