Performance-focused activity-based costing in hospitality businesses: An application in a hotel business

Abstract

This study aims to apply the performance-focused activity-based costing (PFABC) approach in a hotel business and to calculate used capacity costs, inefficiency costs, idle capacity costs, and unit service costs by activity centre. The research was designed as an applied case study based on 2025 cost and operational data from a five-star hotel in Van, Türkiye. Four activity centres were identified: rooms, food and beverage, management and support, and general services. In the first stage, total costs were allocated to activity centres. In the second stage, practical capacity, capacity cost rate, standard time, actual time, inefficiency cost, and idle capacity cost were calculated for each activity centre. In the final stage, the costs associated with used capacity and activity centres were allocated to standard rooms and suite rooms through appropriate cost drivers. The findings indicate that actual times exceeded standard times in all activity centres, resulting in inefficiency costs. Capacity utilisation rates ranged from 9.86% to 42.37% across activity centres. Idle capacity costs were not assigned to unit service costs but were reported separately for managerial decision-making purposes. When used capacity and performance deviations were considered, the unit cost of a standard room was calculated as TL 1,397.55. In contrast, the unit cost of a suite room was calculated as TL 1,771.26. The study shows that the PFABC approach can be used as a management accounting tool that integrates cost, capacity, and performance information in hospitality businesses.