Timeshare is a type of trading real estate that the using time of properties is divided into parts in order to sell to different people. These multiple parties hold the rights to use the properties together. The buyers have the ownership over these properties in a certain period of time (usually one week and almost always the same time) each year and this ownership will last from 20 to 30 years while the buyers still pay the current price. The realties are usually designed as comfortable house that are fitted with all modern conveniences for families’ daily lives.
These properties are diversified in forms. They can be hotel rooms, resorts, apartments in tourist area and the most high-grade form is villas. The special feature of this trading type is that the buyers can exchange the right to use their properties among timeshare owners. It means if the buyers find it bored to stay in the same place every year, they can register to visit and live in others’ apartments and other people will use their properties in return.
It helps people travel all around the world more easily and economically. Fairview Manor is a new timeshare and leisure complex which is developed by Universal Marketing PLC – a company works in the field of international timeshare marketing. PLC is going to offer a number of holiday apartments for sale, but they have not decided the prices yet. Fairview Manor is located in the West Country, England where tourism takes an important role (contributing i?? 4,928 million to the region’s economy in 2003).
Therefore, PLC has favorable conditions to approach customers but there are also many competitors in this region making them think carefully about their products and prices. There are three kinds of apartments in this Fairview Manor complex – Studio, One Bedroom and Two Bedroom – which differ in the quantity of rooms as well as the capacity of an apartment. Each form satisfies a particular demand of customer and the total numbers of apartments are also different. This report will reveal the financial calculations and recommendations which are needed to assist the work of pricing apartments.
Therefore, the company can decide a fair price per apartment per week before selling them into the market. In order to make the report clear and easy to follow, it is necessary to indicate which method is used to orient the process of calculation. Because the main requirement of this report is to distribute the costs logically, we decided to use “activity-based costing” approach. 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. 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. 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. 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.