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  1. Variable and absorption costing.


    How they differ? And financial reporting through both.    


Subject Business Pages 30 Style APA


Absorption and Variable Costing Financial Reporting and Decision Making for Luxury Hotels in Egypt





Table of content for the study

  1. Executive Summary
  2. Abstract
  3. Chapter 1: Introduction
  • General description of areas of concern
  • Significance of the problem
  • Analysis of the theoretical basis of the study
  • Criticize and analyze relevant literature
  • Problem Statement
  • Research questions objectives, and hypotheses of the study
  1. Chapter 2: A Literature Review
  • Historical background
  • Theory related to research questions and hypotheses
  • Current empirical literature related to research questions and hypotheses
  1. Chapter 3: Research Methodology
  • Participants of the study or the sampling technique for the study
  • A measure of data.
  • Research design
  • Procedures
  • Data analysis
  1. Chapter 4: Results
  • Statistical analysis to answer the research questions and hypotheses
  • Data presented in tables and figures
  1. Chapter 5: Discussions
  • Summary of the study
  • Conclusions of the study
  • Limitations of the study
  • Recommendations for future research
  1. References
  2. Appendices













Executive Summary

The main purpose for the study is to investigate the application of absorption and variable costing methods and their influence on financial reporting and decision making for hotel managers. The main demographics for the study include luxury hotels in the Egyptian market. The reason behind this study is the limited application of costing methods in the hotel industry. Besides studies in costing has had more focus in the manufacturing sector more than for service sectors such as the hotel industry. The research is structured as follows. First, there is a brief description of cost management in the hotel industry with an emphasis on the peculiarities of the sector and the offered products and services. Under the literature review section, there is an analysis of cost management issues in the hotel industry. The last section of this paper includes a detailed analysis of the research findings from a survey conducted on luxury hotels in Egypt.











Managers make decisions based on internal and external factors surrounding their operations. Most external information depends on the overall state of the economy in which a firm and its rivals operate. The management of private information varies from one organization to another. Regardless of the type and industry of data, the internal reporting system depends on the firm’s accounting channels, specifically management accounting. Management accounting, including budgeting and budgetary control and cost-based management, is concerned with the estimation of expenses and investments that a firm proposes to achieve its goals and objectives. Using the right control system such as marginal costing, absorption costing, activity-based costing combined with the right information technology system can significantly improve information flow and decision-making process for managers. A field of particular interest in studying management accounting techniques is the tourism sector, especially luxury hotels. Cost accounting techniques in the hotel industry aim to control costs to improve quality and performance and use the information in making strategic and tactical decisions. Although many theories on management accounting have relied on the manufacturing industry, this research is set to identify the peculiarities and unique circumstances that the hotel industry require using existing approaches. Therefore, the research will identify absorption and variable costing models adopted by the hotel industry and investigate how the latter influence financial reporting and decision-making process for managers.




Chapter 1: Introduction

  1. General Description of the Areas of Concern

Cost accounting systems have become an important concept in the hotel industry as they improve the decision-making process. The development and evolvement of cost accounting theories accompanied by advances in information technology are vocal in improving the theoretical capabilities of cost accounting in the hotel industry. However, two main questions remain unanswered within the hotel industry. First is whether cost accounting theories play a role in significant improvements in the decision-making process for hotel managers. Second is whether many variables drive the success of cost accounting systems, including absorption and variable costing methods. The research aims to show how hotel managers need to be convinced of the application and use of cost accounting theories to make informed decisions on performance and improvement in the hotel industry.

  1. Significance of the Problem

Managers across different industries are faced with management accounting decisions to provide accurate and timely information about internal and external factors affecting the business. While gathering this information, managers must uphold accounting principles such as transparency, reliability, and relevance to provide a true and fair view of the business affairs. Regardless of the type of information that varies from one organization to another, each organization has a peculiar internal reporting system that depends on accounting and management accounting channels. Management accounting mainly dwells on the budget and budgeting control systems and cost-based management techniques applied by the organization. Particularly, the budgeting part of every organization includes the estimation of expenses and allocation of resources within different cost centers to achieve its business goals and objectives. For improved control procedures, an organization must apply the right costing system. Some of the common costing systems include absorption costing, activity-based costing, marginal costing, and standard costing models. With the right information technology support, the costing models can significantly improve the information flows to management or directors for the hotel industry. The effectiveness of a combined costing and information technology system is reflected by the sound decision-making process measured in performance targets within the hotel industry (John, 1973). As a business grows, the demand for compliance and reporting to its stakeholders multiply. In this case, organizations in the hotel industry are allowed to customize their internal control processes for strategic and tactical decisions on management accounting issues for their stakeholders. 

  • Theoretical Analysis of the Study

While many studies on managerial accounting have focused on the manufacturing industry, there is a particular interest in studying its application in the tourism industry, especially for hotels. Costing for hotel items has the objective of controlling costs, improving quality, and using the latter to make strategic and tactical decisions for competitive advantage. In the last decade, there has been significant growth in the hotel sector through the expansion of services and the expansion of hotels across borders. Luxury hotels such as the Hilton, Kempinski, Sarova, among others, not only do they offer lodging and food and beverage services but also offer a wide range of services, among them conference facilities, golf courses, and spa. Besides these services, luxurious hotels as a service industry offer coincide with consumer consumption (Collins International, 2013). The number of peculiarities and services in the hotel industry complicate cost and management accounting issues in determining the cost and return relationships and the making of vital tactical and strategic decisions. The cost and return relationship on individual activities are no longer applicable in the hotel industry because certain aspects of the business do not generate adequate revenues (Hemmington and King, 2000). In a simpler sense, there is a lack of management accounting capabilities to perform multiple costing systems in the hotel industry. Furthermore, the structure of tourist and hotel packages, especially the all-inclusive ones, make costing considerations more difficult for the industry (Bekiaris and Pinakoulaki, 2006).  Due to these arising challenges, the study of this research, therefore, makes it relevant in understanding cost accounting theories and how their application can improve decision-making procedures for luxurious hotels in Egypt. 

  1. Problem Statement

Based on these challenges on applying the right costing system, there is a need for cost-based management specifically for absorption and variable costing. Previous studies in this area have documented cost accounting theories, including Mongeilo and Harris, 2006, and Harris and Brown, 1998. The use of cost accounting systems would help reveal the strengths and weaknesses, pricing and strategies, economies of scale, and help define key features and relationships that link, labor, capital, and materials for the hotel industry. However, there are relatively few research studies that have investigated the adoption and application of costing systems (absorption and variable costing) by hotel accountants and managers (Colin, et al., 2008). The research will investigate hotel managers’ perceptions and accountants on how the cost management systems and decisions are interlinked in the hotel industry. This research focuses on the luxury hotel sector in Egypt, including hotels with strong seasonality, publicly traded, and family-owned hotels.

  1. Research Questions, Objectives and Hypotheses of the Study

The main research question for the study include the following;

Do luxury hotels in Egypt apply absorption and variable costing systems for financial reporting and decision making?

Research Objectives;

  1. To investigate whether luxury hotels in Egypt apply absorption and variable costing for decision making.
  2. To investigate which costing method is better for Luxury hotels in Egypt between Absorption and Variable Costing.
  3. To investigate financial reporting framework for absorption and variable costing for luxury hotels in Egypt.

Research Hypotheses

The research hypotheses for this study is dependent on the theoretical framework and previous research done in this area. The main hypotheses for the study include the following;

Hotel managers for luxury hotels in Egypt apply absorption and variable costing methods for decision making and financial reporting




Chapter 2: Literature Review

  1. Historical Background

                        Luxury hotels in Egypt adopt cost accounting techniques in pricing their products and services. Some of the commonly applied costing methods include absorption and variable costing methods. Absorption costing methods is a managerial technique that captures all costing associated with the manufacture of a specific product. For the hotel industry, all direct and indirect costs, including direct labor, direct materials, insurance, bills, and rent, are accounted for using the full absorption costing method. In the United States, absorption costing is the accepted method as per the Generally Accepted Accounting Principles for external reporting. Through this method, the fixed overhead charges of an organization are included as part of the production or service costs. In contrast, variable costing is a costing methodology that only accounts for variable costs. In this approach, all overhead costs are charged to the expense in the period incurred while overhead costs and direct materials are charged to the inventory. The variable costing method is not applicable to financial reporting since accounting frameworks such as the internal financial reporting (IFRS) , Egypt Accounting Standards, and GAAP require that an organization overhead be allocated to inventory. However, the variable costing method is applicable in break-even analysis in matching revenue and expenses, establishing the lowest price at which a product can be sold, and the formulation of internal financial statements and contribution margin. In the hotel industry, both costing methods are applicable for financial reporting and the formulation of internal financial statements.

                        As highlighted above, there exists a significant difference between absorption and variable costing in the hotel industry. The main difference between the two costing methods is on the treatment of fixed overhead costs. While absorption costing allocates fixed overheads across all production units for the period, variable costing sums up all fixed costs and reports the expense as one line item separate from the cost of goods sold and available for sale items. The variable costing method does not determine the fixed overhead per unit. Absorption costing is a more preferred method for financial reporting purposes as it separates cost items between overhead fixed and variable costs to items attributable to the cost of goods sold and those attributable to the inventory (Baker & Collier, 2003). Thus, for reporting purposes, absorption costing provides more accurate accounting ending inventory because expenses linked to the inventory are valued at full cost. Besides, more expenses are accounted for unsold items, which reduces the actual expense reported in the current fiscal year in the income statement, resulting in higher incomes than the variable costing technique. Therefore, firms in the hotel industry need to apply the right costing procedure to reflect the accurate, reliable, and true and fair view of its financial statements to stakeholders (Banai & Tulimieri , 2013). Besides hotel accountants, and managers rely on prudent financial reporting standards to make informed decisions on performance and comparability for competitive advantage purposes.

                        Costing records in the hotel industry provides financial and non-financial information about the current status of the organization. The information from costing methods is important both for financial and management accounting purposes (Hilton et al., 2000). Costing for a hotel business is comprised of several techniques and concepts that are aimed at alleviating information gathering, use of historical costs, and analysis for the decision-making process. Like the manufacturing industry, hotel managers and accountants require accurate and timely information to make tactical and strategic decisions. However, due to differences between the manufacturing and hotel industry on a wide range of services, geographical distribution, idle costs, hotel chains, and cost structures, some costing systems applicable to the former may not be applicable for hotel firms (Jones & Lockwood, 1995).  According to Pellinen (2003), there is no adequate literature on the use of cost by the hotel and tourism industry. Further, Potter and Schmidgall (1999) propose that the application of managerial accounting in the hotel industry has attracted huge interest as businesses look to control costs and maximize revenues for their businesses. The cost identification process for a hotel business is quite similar to that of manufacturing firms. An indicative list of hotel products and services is as follow:

  • Lodging services.
  • Laundry services.
  • Food and beverage services.
  • Swimming pool services.
  • Computer and fax services.
  • Secretarial services.
  • Transportation services to and from the airport.
  • Health services, including massage, spa, and therapy.
  • Cultural and art services
  • Safe-deposit services.

The cost structure for hotel businesses is based on the operations and administrative structure, dependent on the organogram of a specific firm. For every department, division, or segment of a hotel business, there is a corresponding cost center, profit center, and investment center. The basic cost centers for hotel business are as follows;

  • Hotel operation functions
  • Finance and accounting functions.
  • Human resource and administration functions
  • Marketing and sales functions
  • Supply and procurement functions
  1. Theory Related to Research Questions and Hypotheses

The basic functions are further divided into sub-categories such as tourism product development, accounts receivable, and accounts payable. More specifically, every hotel unit or division is allocated to a corresponding cost center. Based on the internal reporting systems of a hotel business, itemized expenses are distributed and allocated to functions responsible for incurring operational costs. The support functions are distributed to support centers, which are then matched with the main cost centers (Choi & Mattila , 2004). Hotel businesses have a peculiar feature in terms of products and services offered. Operational departments often act as both profit and cost centers in the sense that profits received from bookings and services are matched with the expenses such as food and beverages. The matching of revenues and costs enables the hotel business to determine the amount of profit generated from each unit or division (Bita , 2019). If we further sum up the market costs, the hotel business can analyze the amount of gross income received from every department in a given hotel. The latter assesses the productivity, performance, and profitability that encompass divisions of the hotel business.

From previous research findings conducted in Belgium (Kerremans et al., 1991), UK (Drury et al., 1993), and Australia (Blaney and Joye, 1990), a common conclusion was reached that 75% of production costs relate to direct costs while 25% is attributed to indirect costs in the hotel industry. According to Drury (1993), 13% of the surveyed population revealed that indirect costs relate to 12% of production costs in the UK. Many luxury hotels globally are faced with high fixed costs to maintain their operations inclusive of bills, insurance, rent, among others (Kotas, 1997), which accounts for three-quarters of the total production costs. For example, according to Drury’s study in the UK, fixed costs relating to hotel rooms inclusive of personnel and salaries correspond to 15% of the sales revenues. Variable costs for hotels are usually lower, comprising of internal supplies, energy, and laundry expenses. Other related fixed costs for hotel businesses include food and beverage services. As a result of high fixed costs, this translates to high gross margins that imply an increase in hotel revenue and significant growth in net income (Kotas, 1982). Therefore, hotel businesses must apply the right cost structures to differentiate between fixed and variable overheads within their operations.

John Lesure (1973) conducted a survey on cost allocation systems for hotels. According to the study, absorption costing is common in accounting for health delivery systems in order to meet financial reporting requirements for third-party billing agencies. There is also a need for distribution of overhead expenses and fixed costs in hotel operations in the hotel industry. The allocation of costs is needed for both internal and external uses. Within the internal system for hotel businesses, managers utilize the cost allocation for the decision-making process. Stakeholders, including suppliers, will evaluate the costing system to evaluate their pricing for products and services to different hotels.


  • Current Empirical Literature Related to Research Questions and Hypotheses

A survey conducted by Brignall et al. (1991) observed that hotel chain operations normally define their cost structure guidelines. The research concluded that hotels normally prefer the net profit margin ration rather than the contribution margin ratio to reflect the business’s fixed cost elements. Besides, cost management for a hotel business is dependent on cost centers allocated to hotel functions and departments.

Further to this study, Hyvoven (2005), conducted a survey concerning corporate attitudes towards managerial accounting systems from a sample of 132 Finnish companies drawn from the electronic industry, forestry, and basic materials. The management accounting systems were graded from their benefits and compared with a similar study in Australia by (Chenhall and Langfield, 1998). The study results found that 94% of the sample businesses applied marginal costing, followed by absorption costing at 86%, and activity-based costing at 86%. The results were further supported by Lukka and Granlund (1996), who concluded that marginal costing is quite conversant with Finnish firms. In a follow-up survey by Brignall (1997), his study found that hotel businesses less adopt standard costing than manufacturing firms. From his study, service sector firms such as the hotel industry apply a costing process that maximizes their dynamic operating parameters. According to Hyvonen (2005), Finnish firms’ common practices for better control of costs include;

  • Budgeting for cost control
  • The profitability of products and services per the profit centers
  • Marginal accounting


Activity-based costing has low adoption rates in service sectors, such as the hotel industry. Most importantly, service sectors pay close attention to profitability per product or service offered. Service industries conduct regular surveys for customer satisfaction while a balanced scorecard is used in evaluating profit centers. Overall, firms observe cost management techniques relevant to a given industry; however, for a service sector like the hotel, absorption or marginal costing is much relevant in matching cost and profit centers.

             Pellinen (2003) surveyed six tourism businesses. The observations from the research indicated that variable costing is much applicable for internal financial statements for hotel businesses. The inclusion of variable costs is based on the fact that only indirect costs are attributable to products and services as the sources for these costs are objectively measured on consumption levels. 

                        Anita and Paula (2014) conducted a study on costing methods applied in the hotel industry. The researchers sought to find out the improvement of management accounting in the public food and tourism industry. The research identified problems in management and cost calculation for the tourism and public food industry with the aim of improving its processes. The findings from the study indicated that the separation of fixed and variable costs is vital in business processes. If the simplified direct costing (variable costing) is applied in the hotel industry, standards can be introduced to identify the costing method that maximizes the profitability of the organization.

Chapter 4: Research Methodology

  1. Sampling Technique for the Study

The research or survey was conducted during the months of March, April, and May 2020. The survey population consisted of all the Luxury survey hotels in Egypt, including the five-star rating hotels as per the Greek hotel legislation. The legislation defines the different categorization of hotels based on products and services offered within Egypt’s tourism industry.  In order to collect the corresponding data on costing models, the researchers used a hotel database from Egypt’s Chamber of Commerce. Some of the underlined five-star hotels were Royal Maxim Kempinski Cairo, Four Seasons Hotel Cairo, Marriot Mena House Cairo, Four Seasons Resort, and The St. Regis. The reason behind Egypt’s luxury is because they better conform to international financial reporting standards in accounting and the requirements of the research. Besides, luxury hotels attract the best human talent, have formalized accounting departments, have better cost control measures, and can adopt more than one accounting system in their models. The sampling method was census-based as data was requested from the whole target population of over 100 Egyptian luxury hotels. The luxury hotels are inclusive of major players, including the Marriot International, Accor SA, Hilton Worldwide Holdings, Radisson Hotels, and the Melia Hotels International SA (Collins International, 2013). 

  1. A measure of Data

In order to ensure the reliability and relevance of data, an initial pilot survey was conducted for ten luxury hotels. Based on the outcomes of the pilot study and review of relevant literature, the survey questionnaire was redefined in order to get better reflect the goals of the research. Data on cost accounting systems were mainly collected from hotel accountants and finance managers since they are actively involved in their daily usage.

  • Research Design

Research design used for the purpose of this study includes the survey technique. Through observation of costing techniques applied by hotel managers and accountants, research questionnaires were distributed over the defined period. The census technique was seen as objective as the target population was clearly defined improving the credibility of the study.

  1. Procedures

A quantitative research process was applied for this study. After collection of data from the target population, a survey of relevant literature was done to provide conclusive evidence. A test of the hypotheses was done to understand the correct position on application of the costing methods for financial reporting and decision making for hotel managers.

  1. Data Analysis

Data analysis for this study was done using excel spreadsheets in finding out how many luxuries applied the costing methods in their organization and their impact in decision making process.

  1. Chapter 4: Research Results
  2. Statistical Analysis to Answer the Research Question and Hypotheses

Based on the aforementioned surveys, the research was aimed at collecting and analyzing data for the following cost and management accounting issues, information technology, and accounting practices of Egypt luxury hotels:

  • The adoption of different types of cost and management accounting systems for Egypt Luxury hotels.
  • The handling of particular issues in the costing process of hotel operations in Egypt.
  • The mixture of costing and information technology for financial reporting and decision making for hotel accountants and managers.
  • Presentation of hotel personnel opinions related to their satisfaction from using their costing system (absorption and variable costing systems).
  • Presentation of additional needs for cost control in hotels and decision making, as stated by hotel accountants and managers.

Effectiveness of Pricing Methods Based on Absorption and Variable Costing for Financial Reporting and Decision Making

 The key questioned circulated during the survey was to evaluate the application of absorption and variable costing systems within luxury hotels in Egypt. Surveyed personnel, including hotel accountants and managers, could grade the application on a 5-grade Likert scale with the values ranging from “inadequate” to “very good.” According to the findings of the survey, 33% of the respondents graded the system average, while 47% gave a grade of well explained by the nature of the hotel operations. Table 1 below gives a summary of research findings on the application of absorption and variable costing within Luxury hotels in Egypt. On the application of absorption costing in their operations and costing procedures, 53% rated good, and 23% rated average on the application of variable costing 42% rated average while 35% rated good. 




Absorption Costing

Variable Costing






Below Average















Very Good











Absorption and variable costing are used by hotels for cost structure and pricing reasons. Direct costs for hotels consist of the largest part of their production costs (Kloock and Sschiller, 1997). In addition, the costing methods are used for short-term and long-term planning of hotel businesses. Our surveys are conclusive that to those of international surveys that conclude that absorption costing is the widely used accounting system for modern luxury hotels, it matches the financial reporting framework as per the GAAP and IFRS standards.

 With regard to variable costings, the respondents gave their opinion on the difficulties they face while applying the variable costing method. From the findings of the survey, the conclusion was 77% of respondents who marked average or good was of the opinion that variable costing is best applicable in matching cost and profit centers. In seasonal businesses such as hotels, adoption of the variable costing method creates problems since fixed cost elements comprise a huge element for hotel businesses. According to Brignall (1997), variable costing for hotels is most applicable for internal purposes due to the low-level activities during certain periods of the year.  Besides, the absorption and variable costing methods, the respondents were asked to suggest other costing structures in the hotel industry. Marginal costing, standard costing, and activity-based costing methods were suggested as other methods applicable in the hotel industry.

User’s Satisfaction from Information Technology and Accounting Costing System

A modern managerial accounting information system is vital in providing management with specialized financial reports for decision making. Some of the specialized reports include budget and budgetary statements, or deviations from norms and responsibilities within the department (Hall, 1998). Management control systems include mechanisms and techniques used by hotel businesses in achieving their goals and objectives. One important of measuring corporate performance for hotel businesses is the application is the use of accounting information systems. Through these applications, corporate performance can be conducted with ease using financial ratios to determine whether expectations have been met. Respondents were requested to give their opinion regarding the application of information systems in costing. Most of the responses were positive that the use of accounting information systems is vital for efficiency, generation of reports for decision making. Management can generate up to date reports for cost control measures and maximization of revenues within the organization. In many cases the goals of an operating unit for costing is related to the following management information system goals and objectives;

  • Accuracy of recording corporate performance
  • Exercising pricing strategies for hotel bookings, food, and beverages, among other services.
  • Better control of costs within the business units.
  • Analyzing activity levels within which the business achieves optimal cost and maximizes its revenues for every department and division in the hotel business.

In consideration of the special characteristics of Luxury hotels in the Egyptian tourism sector, the survey sought to seek the level of satisfaction from hotel accountants and managers on the use of a hotel’s accounting costing systems. Respondents were requested to grade the level of satisfaction on a 5-grade Likert scale with grading ranging from “Somewhat dissatisfied” to “Very satisfied.” Based on the responses, it is worth noting that most of the respondents were highly satisfied with the use of an accounting costing system to implement cost control measures within a hotel. The findings from the respondents are as summarized below;

Table 2: Satisfaction Level Regarding Application of Accounting System for a Hotel Business in Egypt

As discussed earlier, Egyptian firms use the Egyptian Accounting System for the preparation of their accounts. Egypt is yet to adopt international financial reporting standards for both listed and unlisted firms (International Accounting Standards, 2020). The EAS standards have defined the cost monitoring accounts. The CMA is mainly concerned with the identification of cost centers and basic organizational functions. CMA also identifies the cost of goods in each category and does accounting monitoring based on type, volume, and value. Further, the CMA procedures are responsible for allocating inventory expenses, including salaries, insurance, taxes, and rent, and matching revenues to determine the profit margins per cost center. The model is highly applicable to the service sectors, especially the Egyptian hotel industry, through a proper accounting information system. The survey sought to seek an understanding of the use of the CMA rules in a specific hotel. The response was highly positive, as over 90% of the respondents indicated that they complied with CMA rules on the allocation of costs. However, respondents noted that lack of proper accounting information systems results in low compliance with CMA rules raising auditing issues. Therefore, there is a need for improved communication on financial information in the hotel management for the proper allocation of costs in different cost centers.

The final survey question sought to understand whether the application of absorption and variable costing influences the decision-making process for hotel managers. The relevant question for the purpose was as follows; “Are you monitoring performance using costing and accounting information system? Do you believe that the cost criteria in your hotel are useful in decision making? Based on the responses gathered, only 43 hotels monitored performance and considered the costing structure useful for decision making. Hence, selecting a costing system and installing an information system is vital for influencing the decision-making process for hotel managers.




Somewhat dissatisfied



Neither satisfied



Somewhat satisfied



Very satisfied







Chapter 5: Conclusion

  1. Summary and Conclusion of the Study

The hotel industry plays a crucial role in the global economy. As witnessed during the Covid-19 pandemic, the hospitality and tourism sector has been one of the hardest-hit sectors. The world has experienced one of the worst recessions in the hotel sector due to low bookings resulting in massive layoffs, low revenues, and earnings. Despite these disruptions, hotel managers should monitor both internal and external business environments to determine appropriate and effective tactical and strategic decisions. Decision making for hotel managers should consider management accounting tools, including budgeting and budgetary control measures and costing. The separation of hotel operations into different segments and identification of costs is an away to analyze information, profitability, performance, and financial status of a hotel. Using appropriate costing systems such as the full absorption costing and variable costing is vital to proper identification of costs and profitability of different hotel units. Furthermore, hotel costing systems should contribute to budgets as forecasting tools to improve the business environment. Summarizing the findings of the survey, it is worth noting the following;

  • Egypt luxury hotels use cost accounting tools to allocate costs per cost centers and profit centers. Allocation of costs is not per customer type or room type but within departments and divisions of the hotel.
  • Almost half of the surveyed hotels were satisfied with accounting information systems in the allocation of costs in the hotel industry. The use of information systems improves transparency, reliability, and relevance of accounting data. The modern accounting system is very much conversant with IT use for efficiency and improving business processes.
  • Many hotels comply with the use of CAMs for compliance with the Egyptian Accounting Standards.


  1. Limitations of the Study

The main limitation for the study is that there exists limited research for application of costing methods in the hotel industry. There is, therefore, less comparisons on the current results with previous literature. Luxury hotels in Egypt are majorly the big hotel chains which sometimes prefer to comply with the international financial reporting standards. It was, therefore, difficult to determine whether current application with the Egyptian Accounting Standards was conclusive. The research had time constraints in getting respondents from the respondents. In some cases, hotel managers preferred the junior accountants to provide the important data. This would bring bias to the results of the study as the higher-level employees are more involved in the decision-making process. Management accounting reports are also not part of accounting publishing; hence, it was hard to get verifiable data on the application process and use of accounting information systems. 

  • Recommendations for Future Research

As described in the introductory section, the costing system’s main goal is to ensure accuracy, recording, and allocation of costs to products and services within the hotel industry. With the use of managerial accounting tools, the elements improve the quality of information flow for decision making for hotel managers. Decision making is reliable when the costing systems provide accurate, complete, flexible, timely, and value-based information (Connors & Martinsons, 2006). The use of accounting information systems is deemed necessary in the hotel sector to minimize costs related to the allocation and transfer of data to end-users. Further, the information systems ensure timely and continuous data feedback, which improves the auditing and monitoring systems. In Summary, the study has a broader research perspective on budgeting and costing studies for hotels. If all tools in cost and management accounting are deployed within hotel settings and monitored by accounting information systems, hotel managers will have more complete, timely, and accurate information on cost behaviors and short-term and long-term decision making. The research recommends extending the research to the whole hotel industry. The application of the right costing is important to the hotel industry as it helps in better management of costs and maximization of revenues. Further, the research recommends more research on costing methods in the service industry as more focus has been on the manufacturing industry.



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Appendix 1: Questionnaire for the Survey

The purpose for this study is to investigate the application of absorption and variable costing for financial reporting and decision making for hotel industry in Egypt.

Thank you for sharing your thoughts with us: All information provided is for research purposes only and will be reserved with high confidentiality.

  1. Demographic Data

Name (optional:


Gender: ____

Name of the organization:

Email Address (optional):


Number of years in the organization:

Notes: This section is optional. The questions asking for demographic data should be relevant to the survey goal and must point to the characteristics of the target population.

  1. How would you rate your overall experience in application of costing methods (Absorption and Variable Costings) in your organization?

            □ Highly satisfactory

            □ Satisfactory

            □ Neutral

            □ Unsatisfactory

            □ Highly Unsatisfactory

  • How would you rate your overall experience in application of accounting information systems in your organization?

            □ Highly satisfactory

            □ Satisfactory

            □ Neutral

            □ Unsatisfactory

            □ Highly Unsatisfactory

  1. Do you apply costing methods in your organization for decision making?

      □ Yes                                      □ No



Strongly Agree




Strongly Disagree

1. Costing methods is a perfect method for cost management






2. Absorption costing method is most widely used.






3. Variable costing method is most widely used.






4. Absorption and variable costing methods are mixed for decision making process.







5. Costing methods are used hand in hand with accounting information systems.






6. Costing methods comply with IFRS and GAAPS.






7. Costing methods comply with Egyptian Standard.






8. Costing methods improve business processes and financial reporting










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