Finance and Funding in Travel and Tourism

Finance and Funding in Travel and Tourism
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Table of Contents
Introduction.................................................................................................................................................3
Task 1..........................................................................................................................................................4
1.1 Explain the importance of costs and volume in financial management of travel and tourism
businesses using Carnival Corporation & plc as your case study............................................................4
1.2 Analyse pricing methods used in the travel and tourism sector.........................................................8
1.3 Analyse factors influencing profit for travel and tourism businesses using Carnival Corporation &
plc cruise brands as your case study......................................................................................................10
Task 2........................................................................................................................................................12
2.1 Explain different types of management accounting information that could be used in travel and
tourism businesses.................................................................................................................................12
2.2 Assess the use of management accounting information as a decision-making tool..........................12
TASK 3.....................................................................................................................................................26
3.1 Interpret financial accounts of Dalata Hotel Group plc for the year ended 31st December 2016
showing at least two years performance (for example comparing 2016 to 2015)..................................26
Task 4........................................................................................................................................................32
4.1 Analyse sources and distribution of funding for the development of capital projects associated with
tourism...................................................................................................................................................32
Conclusion:...............................................................................................................................................36
References.................................................................................................................................................37
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Introduction
In this study, the importance of costing and the methods followed by Carnival Corporation in
pricing the various services have been discussed along with the importance of Cost-Volume-
Price analysis. The different types of cruise used by Carnival Corporation and the unique
facilities provided by the company have also been evaluated. The importance of management
accounting system and the ways in which the data is used in the managerial decision-making
process have been discussed with the case study of Dalata Hotels along with the interpretation of
the final accounts of the company. In the last part, the role of the department of media, culture
and sports in the UK region has been discussed along with the different ways in which the capital
projects are funded in the tourism industry. Also, the ways in which the funds are utilised has
also been included in this study.
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Task 1
Introduction
In this section, the meaning and importance of costing have been discussed along with the
different types of costing methods followed by Carnival Corporation. The importance of Cost-
volume-price analysis has also been included along with the pricing strategies followed by
Carnival Corporation. The factors that affect the performance of the cruise business have also
been included in this section.
1.1 Explain the importance of costs and volume in financial management of travel and
tourism businesses using Carnival Corporation & plc as your case study.
Costing/Pricing
Price is one of the important factors since an efficient pricing strategy enables the business to
compete and sustain in the competitive market condition. Carnival Corporation should formulate
the strategies such that the profits can be realised along with providing services that are expected
by the customers (Teplická, 2015).
Types of Costs
The companies determine the pricing strategy by formulating various methods to determine the
costs incurred in the production of goods and services. The different types of costs that are
incurred by Carnival Corporation are:
Costs identified based on traceability
 Direct Costs: The costs incurred by Carnival Corporation in the form of wages to
the crews, stores, administrative expenses, fuel charges, etc.
 Indirect Costs: These are the costs which cannot be directly traced to a particular
department or source. The cost incurred in promotional activities, payroll of staffs other
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than crew, port charges, are the indirect costs for Carnival Corporation (Accounting Tools,
2018).
Behavioural costs based on Activity
 Fixed Costs: These costs do not change and remain constant even though there
are variations in the level of activity. The fixed costs in the Carnival Corporation can be
rent, depreciation, expenses towards insurance.
 Variable costs: These costs vary according to the variations in the level of
activity. Fuel costs, port charges, incentives and commissions of employees are some of
the indirect expenses incurred by the company.
Breakeven Point
It is used in cost accounting to determine the specific point where the total costs and the revenues
are equal by representing through a graph.
Figure 1: Breakeven point
Source: (Ready Ratios, 2018)
Calculation of Break-even point
The break-even point can be determined by the following formula:
Total Revenue – Total Cost = 0.
Where, Total Costs = Fixed Costs + Variable Costs*N
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Total Revenues = Price per unit * N – (Variable Costs*N + Fixed Costs) = 0
So, the breakeven point (N) = Fixed Costs / (Price Per unit – Variable costs)
Cost-Volume-Profit Analysis
This model was first developed by Hess and Mann in 1903, which determined the fixed costs and
variable costs to determine the breakeven point. However, it has been further improved and in
2001, Yunker designed the way in which this model can be used in the managerial decision-
making process. He proposed a theory which relates a link between the CVP models and demand
curve and connected the volatility of the profit both on quantity and price (Daniel, 2012). This
technique is the most effective and a simple model which is used to determine the breakeven
point and forecasting the sales.
Figure 2: Cost-Volume-Profit Analysis
Source: (Harcourt, 2016).
Cost-Volume-Price (CVP) Approach
The traditional approach used the equation to determine the breakeven point:
Pr(x) = px-(bx+a) = (p-b)x-a
Where, Pr(x) = Profits, p=profits, x=quantity sold, b=unit variable cost (average), a=fixed costs
(Daniel, 2012).
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Importance of Cost-Volume-Price Analysis
This model is used by the management to forecast the profits by analysing the volume of sales
required to achieve the desired sales objectives. Carnival Corporation will have the following
benefits of using this model:
Controlling the Costs: This model helps to evaluate the ways in which the variable costs can be
controlled and the impact of the new investments on the profits.
Profit Planning: The number of seats that have to be filled in order to realise the profits can be
ascertained by using this model (Wicks, 2017).
Pricing Strategy: An effective pricing strategy can be developed since the cost price of the
service can be ascertained. The sales price of the tickets and other services such as
accommodation, food, etc. can also be ascertained. This helps to compete in the market
effectively.
Budget Preparation: The provisions for various expenses can be effectively made since the
sales target and the forecast of sales can be ascertained by preparing budgets.
Decision Making: The decisions related to marketing and promotion can be taken effectively.
The strategies that can be used by Carnival Corporation to design an effective distribution
channel can also be done. These decisions help to minimise the wastages and improve
operational efficiencies (Wicks, 2017).
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1.2 Analyse pricing methods used in the travel and tourism sector.
Costing/Pricing Strategies
Pricing strategy is devised according to the prevailing trends in the market and the expectations
of the customers towards the company. This helps not only to compete in the competitive market
scenario but also helps to increase the market share of the company. The strategy has to be
formulated so that the different types of costs, both fixed and variable, should be included along
with the profit margin which has been decided by the management. Hence, an effective pricing
can be derived from:
Sales Price = Fixed Costs + Variable Costs + Profit margin
Carnival Corporation formulates the pricing strategy based on the various services provided to
the customers. There are different types of cruises and brands such as:
Figure 3: Carnival's contemporary, premium, and luxury cruises
Source: (Cederholm, 2015)
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