FINANCE AND FUNDING IN TRAVEL AND TOURISM TABLE OF CONTENTS INTROUCTION 3 TASK 1 3 1.1 Importance of cost and volume in financial management of travel and tourism business
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FINANCE AND FUNDINGIN TRAVEL AND TOURISM
TABLE OF CONTENTSINTRODUCTION.......................................................................................................................................3TASK 1.......................................................................................................................................................31.1Importance of cost and volume in financial management of travel and tourism.................................31.2 Analysis of pricing methods used in the business..............................................................................41.3 Analysis of factors affecting profit for travel and tourism business...................................................6TASK 2.......................................................................................................................................................82.1 Different type of management accounting information that can be used in the business...................82.2 Use of management accounting information as decision making tool...............................................9TASK 3.....................................................................................................................................................103.1 Ratio analysis...................................................................................................................................10TASK 4.....................................................................................................................................................124.1 Sources and distribution of funding for development of capital projects associated with tourism...12CONCLUSION.........................................................................................................................................12REFERENCES..........................................................................................................................................13YTable 1Ratio analysis................................................................................................................................10
INTRODUCTIONTravel and tourism business is growing a fast rate across the globe. In the current report,varied issues in respect to travel and tourism business are discussed in detail. Significance of costand volume in respect to financial management is discussed briefly. Apart from this, variedpricing policies and ratio analysis is done in the research report in order to evaluate companyperformance. In middle part of the report, management accounting information is also discussedin detail. At end of the report, sources of finance are explained from which huge amount of fundcan be raised by the firm for its business. In this way, entire research work is carried out inreport.TASK 11.1Importance of cost and volume in financial management of travel and tourismCost and volume have due importance for the business firms because it help them indeciding price of their products. Cost can be classified in to different categories like fixed,variable and semi variable cost. Fixed expenses are those expenses which remain constant at allpoint of time irrespective of whatever is production level. Fixed costs remain unchanged withvariation in production level. However, in case fresh investment is made in the business on fixedexpenses then in that case fixed cost get increased in the business. Variable expenses on otherhand belong to other category of expenses (Buckley and et.al., 2012). Variable expenses arethose that alter every time day by day and year by year. Expenses of mentioned type do notremain same and always keep on fluctuating consistently in the business. Hence, it can be saidthat there is huge difference between fixed and variable expenses in the business. On other hand,semi variable expenses are also incurred in the business. Semi variable expenses are thoseexpenses whose some portion remain fixed and some part remain variable. It can be said thatexpenses that are made in the business comes in these categories (Eagles,, 2014). There is hugeimportance of these costs in financial management of travel and tourism firms. This is becausedifferent sort of expenses are made in the business in specific proportion. Accordingly, workingcapital is needed in the business. As per requirements accordingly fund is raised by the businessfirm from the market. Companies that are operating in travel and tourism sector incurred theseexpenses in specific combinations. By considering these combinations business firm determine
that what amount of fund they required in their business. Hence, it can be said that there is hugeimportance of cost for the firms in terms of financial management. At same time volume alsohave significant importance for the firms. This is because it is the volumes that determinewhether firm will be able to cover its service cost in the business. In case firm observe that therewill be less sales of its tour packages then accordingly it make an estimation of its fundrequirements. Hence, financial management of the business firm is heavily affected by cost andvolume that is observed in the business (North, Baldock and Ullah, 2013). Salamanderadventures is one of the travels and tourism company of UK and it is growing its business at veryfast rate. Due to this reason cost is also increasing in the business consistently. This is the reasondue to which firm is paying due attention on financial management of its business so that costand volume can be managed in the business and according to change that happened in bothchanges can be made in the financial management of the business. It can be said that cost andvolume in the business have significant impact on financial management of the firm.1.2 Analysis of pricing methods used in the businessPricing methods used in the business are of different type and it is very important for thefirm to select any specific pricing policy in its business. Some of the pricing policies that areavailable in the business are given below.Cost led pricing: It is one of the most important pricing strategies and under this tacticmain emphasis is one cost of product and services. Means that by considering cost that isincurred in the business price of product is determined. It can be said that it is one of themost important pricing strategy as this ensured that at least cost will be covered in thebusiness and profit will be earned in the business operations. It can be said that cost ledpricing is one of the important pricing strategy.Market led pricing: Market led pricing strategy is one of the important strategies andunder this price of product is determined by considering price that usually other firms arecharging for the product in the market (Morrison, Simpkins, Castley and Buckley, 2012).This strategy is followed in order to ensure that in alignment to other firm’s price will becharged on the product. This strategy help firm in competing with rival firms in themarket. It can be said that there is very huge importance of market led pricing strategy inthe business.
Cost plus pricing: Cost plus pricing strategy is one under which on cost specific marginis added to arrive at specific price. It is the pricing strategy which is followed by all sortof firms in all industries. This is because it is very easy to apply this approach inbusiness. It is well known fact that in every business specific amount of cost is incurredand every firm intends to earn specific net amount on each unit it sold to the customers.Thus, it becomes easy for company to identify per unit cost of its products and servicesand then margin amount is added to it in order to identify sales price of the product(Ballesteros and et.al., 2010). Due to ease of application mentioned costing method isused by all sort of business firms.Absorption pricing: In case of absorption costing approach both fixed and variableexpenses are taken in to account in order to determine sales price of the product. Usually,first of all variable and fixed expenses amount is computed separately and then added tocompute overall cost of the product. At end margin percentage is added to the cost of theproduct in order to compute sales price of the product. It can be said that it is rightapproach to compute sales price of the product. This is because fixed cost incurred in thebusiness is indirectly associated to production of goods and services at workplace. Hence,it is very important to take in to consideration fixed expenses that are incurred in thebusiness. From this point of view it can be said that absorption costing method is one ofappropriate approach of doing costing of products in the business.Marginal pricing: Marginal pricing is one of important strategy that firms can follow inits business in respect to pricing of its products and services at workplace. In marginalcosting method only variable expenses are taken in to account. Means that in calculationprocess fixed expenses are not considered. This is because it is assumed that fixed costtime to time already covered in business and due to this reason inclusion of same costalways in cost of product cannot be considered reasonable (Demonja, 2013). Hence,marginal costing method is assumed appropriate because under this only variableexpenses are considered in costing of products and services in the business.Competitor based pricing: Competitor based pricing is another pricing strategy that isfollowed in the industry in which there is high competition in the market between firms.This pricing strategy is suitable for Salamander adventures. In such condition competitorbased pricing strategy is followed in the business. Under this strategy price that is set be
competitors is taken in to account while determining price for self products. This is donein order to ensure that firm will remain in competition with its rivals.Return on investment: Return on investment is another method that is used to determineprice for the products. Under this strategy investment amount is determined and on samereturn percentage that company intend to earn is determined and by doing so goodamount of profit is earned on investment amount (Horodnikova and Derco, 2015). It canbe said that return on investment is also one of good pricing policy but it is not widelyused in business because competitor factor cannot be ignored by the firm. However, thisstrategy can be used when company product is innovative and unique in nature.Customers are already prepared to pay more for innovative products.It depends on the firm that which of pricing strategy it used in its business. Selection of anypricing strategy depends on what sort of situation firm is facing in its business. Sometimescompetition is very high and in order to survive in the market it is very important to sale productat low or same price. Same pricing strategy cannot be followed by firm in other situations.Hence, it can be said that each pricing strategy is suitable in specific situation and same must becautiously selected in the business because it is one of the big weapon that help firm incompeting with rivals.1.3 Analysis of factors affecting profit for travel and tourism businessThere are number of factors that affect profit of firms operating in travel and tourismsector. It is every important for the firms operating in this sector to take in to account multiplefactors in order to make wise decisions so that business can be managed in proper manner.Seasonal variation: Seasonal variation is the one of the most important factor that firmsoperating in travel and tourism sector needs to take in to account. Seasonal variationrefers to the situation where in specific time sales of Salamander adventures are on pickand in specific duration same declined at sharp rate. This fluctuation is considered asseasonal fluctuation. It is very important for firms operating in this sector to manageseasonal variation in proper manner (Hall and Page, 2014). It can be observed thatduring seasons consistently good earning is observed in the business. It is the time bywhich firms have to make best use of resources in their business. On other hand, whenthere is lack of proper demand in the market there is need to reduce price of tour
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