Concept of CVP Analysis Assignment
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Added on 2020-10-22
Concept of CVP Analysis Assignment
Added on 2020-10-22
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FINANCE AND FUNDING INTHE TRAVEL ANDTOURISM
Table of ContentsINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................1A. Concept of CVP analysis and its importance in the financial management of EUROCARIB................................................................................................................................................1B. Analysis of different pricing methods that EUROCARIB can use to determine price.....2C. Analysing factors that will influence the profitability of EUROCARIB..........................3TASK 2............................................................................................................................................5A. Different types of management accounting information used by EUROCARIB............5B. Using investment appraisal techniques as decision- making tool.....................................7TASK 3............................................................................................................................................8A. The main financial statements of Thomas Cook and interpret the financial statementsusing ratios..............................................................................................................................8TASK 4............................................................................................................................................9A. Sources and distribution of funding the company for development of New Hotel.........9CONCLUSION..............................................................................................................................10REFERENCES..............................................................................................................................12Appendix........................................................................................................................................14
INTRODUCTIONThis study is based on finance and funding in travel and tourism sector. Finance andfunding is related to different sources of funds which are available for organisation to conduct itsvarious activities. This assignment is based on EUROCARIB TOURS which is a London basedtravel company providing various services to its customers such as travel services,accommodation services, food services etc. This travel organisation is going to conduct asummer trip to a Caribbean holiday. This assignment will include the concept of CVP analysisand explain its importance in the financial management of tourism organisation. This study willinclude analysis of pricing method to charge it from tourist. Furthermore, it will include differenttypes of management accounting. This assignment will also include about financial statementprepared by tourism organisation in order to identify ratios for profitability, liquidity andinvestment. Moreover, it will include sources and application of fund available for EUROCARIBto build a hotel.TASK 1A. Concept of CVP analysis and its importance in the financial management of EUROCARIBCost- volume profit analysis is a method of determining changes in cost and volumewhich affect the operating income of organisation. CVP method is used to classify the expensesinto fixes and variable expenses. CVP analysis assist in analysing the relationship between costand profit to volume of business to gain more profits (Alegre and Sard, 2015). Cost- volumeprofit analysis is important in financial management as CVP analysis assist in identifyingpredication of cost and profit for different volume of activity. Cost volume profit assist inmaking flexible budgets. This analysis assist in performance measurements to control deviations in performance.Cost volume profit analysis is importance as it helps in managing the financial resources byidentifying actual cost and volume (Denizci and Mohammed, 2015). This analysis assistEUROCARIB by analysing these factors as it affect the profitability of this firm. Cost volumeprofit analysis by breaking cost into fixed and variable cost helps EUROCARIB in providinginformation about profitability of their products and services. This analysis helps in decision – making regarding different financial resources to utilisethem properly in order to make high profits. This analysis includes various assumptions such assales -per unit is constant, variable cost per unit is constant and fixed cost per unit is constant.1
This analysis provide EUROCARIB about the amount that is remaining after deducting thevariable expenses from sale revenue that is known as contribution margin. This amount is used torecover fixed cost and than the amount remain is regarded as profits for the organisation. CVPanalysis include break -even point which is regarded as no profit no loss point where company isno profits but also there are no losses. The cost volume profit analysis assist EUROCARIB indetermining the break even point which is considered as level of sale where the company haveincurred no loss and not made any profits.D 1 : ParticularsFormula Figure (in £)Fixed cost (FC)120000Desired profit margin (DP)30000Selling price per unit (SPU)1600Variable cost per unit (VPU)400Contribution (CPU)SPU - VCPU12002Illustration 1: Cost volume profit (Source : Cost volume profit (CVP) Analysis, 2015)
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