Finance and Funding in Travel and Tourism Assignment

FINANCE AND FUNDING
IN TRAVEL AND TOURISM

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 The importance of costs, volume and profit in financial management of travel and tourism
business...................................................................................................................................1
1.2 Pricing methods used in the travel and tourism sector.....................................................3
1.3 Factors influencing profit for travel and tourism business...............................................5
TASK 2............................................................................................................................................6
2.1 Various type of management accounting information used in travel and tourism sector 6
2.2 Access the use of investment appraisal management accounting information as decision
making tool.............................................................................................................................7
TASK 3............................................................................................................................................9
3.1 Interpret financial statements of travel and tourism company.........................................9
TASK 4............................................................................................................................................9
4.1 Analyse source and distribution of funding for the development of capital projects
associated with tourism..........................................................................................................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
APPENDIX....................................................................................................................................14

INTRODUCTION
Finance and funding individually indicates towards arrangement of financial resources
and application of financial resources according to needs and requirement. This project introduce
the concept of finance and funding concept in travel and tourism sector. Travel and tourism
sector is one of the growing sector (Spenceley, 2012). It has been dramatically changed and with
this dramatic change requires proper management and operation and utilisation of financial
resources. Importance of cost volume and profit (CVP) in respect of management of travel and
tourism business. Use of management accounting informations are defined in respect of decision
making process. Interpretation of financial data of The Akaglo Tours (ATC) company done to
analyse financial performance of organisation. Sources and distribution of funding for the
development of capital projects defined in this context.
TASK 1
1.1 The importance of costs, volume and profit in financial management of travel and tourism
business
Cost factors are considered essential in respect of analysing the profitability and level of
consumption of financial resources with in organisation. Cost in travel and tourism sector
indicates towards cost of tour package, cost per tourist and visitors. Managers try to prepare cost
effective tourist plans and strategies for potential visitors and tourist. It is required to synchronise
various type of cost to make cost effective and profitable strategies and plans.
Concept of C-V-P
It simply indicates towards cost, volume and profit. These are the main factors which
remain essential for an organisation. Behaviour of cost depends upon type of product and volume
of activity in an organisation. Cost accounting and management system helps managers to
understand and analyse the aspect of C-V-P. Cost indicates towards cost incurred raw material,
labour and direct overheads (Zapata and Hall, 2012). These costs are consolidated in at single
cost centre to calculate overall manufacturing cost of products. As volume increase profit figures
increase at faster rate then cost of material cost, direct expenses and direct labour. A perfect
combination of cost, volume and profit ratio helps to sort out the issue in effective manner and
helps to lead organisation towards sustainable success of organisation. Various type of cost are
found in organisational context which are considered in cost accounting system;
1

 Mark up costing (cost plus pricing): this is the costing method which is used to analyse
the cost the by adding profit margin in manufacturing cost. This method plays vital role
in decision making process. Managers and accountants be able to decide the price of
products and services easily with the help of this method. This reduce the level of pricing
fluctuation which occurs due to demand in market.
Formula = VC+FC+PM=SP
 Total cost (T.C.): this is the combination of total variable cost and total fixed cost. All
the variable and fixed cost are considered while finalising the cost and selling price of the
product (Goswami, Mattoo and Sáez, 2012).
Formula = 1 . P= TR-TC , Revenue =SP?Q (quantity)
2.TC=FC+V C Break even(Units): this is one of the technique which is used to analyse the optimum
requirement of sales units for which organisation do not face any loss and profit. It is
calculated as per following formula:
Break even point = total fixed cost / contribution
contribution is calculated such as contribution = selling price – variable cost
for example total fixed cost is £80000 and selling price of product is £200 and variable
cost is £40 then BEP is calculated as:
BEP (units): 80000 / 200-90 = 500 units
BEP (£) = 500*200 = £100000
 Target return: this is one of the essential aspect considered in C-V-P. For calculating
marginal forecast to identify associated risk target return is used. For example ATC is set
to minimum target of £200000 and the marginal forecast tells that around 1000 tourist
will book the trip. Profit will be calculated in this scenario as follows:
Formula of margin profit = VC+PM=SP
Profit = sales – variable cost – total fixed cost
= 200*1000 – 1000*40- £80000
= £80000
as per above analysis if 1000 tourist book tickets then ATC will be able to generate
£80000 revenues to achieve the BEP of units.
2