Administration Costs

What is the definition of Administration Costs?

Administration costs, also recognized as fixed costs are the costs which acquire on an industry or hotel exclusively from management. These overhead costs are not straightly impacted by manufacturing, production or sale volume and can therefore be explained as fixed costs. They can be seen as the vital costs that occur without a sale having to be made. Examples for organizational costs are taxes, rent, assurance, licensing fees, utilities, accounting and legal teams, administrative staff, facility upkeep, etc.

On the divergent to these fixed costs stand the changeable costs, which differ per product/ service sold.

Keeping administration costs low is a main concern amongst hotel owners. They want to see their earnings grow which can only enhance if administration costs are lower than gross profit. If administration costs are too far above the ground a hotel may be at risk of going bankrupt or accumulate debt. Hotels are infamous for having high fixed costs and low changeable costs – they therefore are known to have a high working leverage, as the variable costs that acquire per room sold (cleaning, refilling of mini bar etc.) are usually small in evaluation to rent, apparatus costs and staff.

 

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