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Finance & Funding in the Travel & Tourism Sector - Eurocarib Tours

   

Added on  2020-07-23

19 Pages5600 Words28 Views
Finance and Funding in the Travel andTourism Sector

Table of ContentsINTRODUCTION...........................................................................................................................................1TASK 1..........................................................................................................................................................1A. Examine the concept of CVP analysis and its importance...................................................................1B. Pricing methods...................................................................................................................................31.3 Analysis of factors affecting travel and tourism business..................................................................42.1 Different type of management accounting information that can be used in the business...................52.2 Assessing the use of investment appraisal techniques as a decision making tool.............................7TASK 3..........................................................................................................................................................8Analyzing financial statements of Thomas Cook.....................................................................................8TASK 4........................................................................................................................................................13Analyzing sources of funding that can be obtained by firm for developing new hotel..........................13CONCLUSION.............................................................................................................................................15REFERENCES..............................................................................................................................................16

INTRODUCTION Finance is the crucial and highly important requirement of every business because noneof the enterprise can operate in tough market with lack of access to sufficient fund. Not only thefund collection is sufficient but also needs to be managed, supervised and administrated stronglyto achieve set financial goals. EUROCARIB TOURS is a London-based tour operator thatlaunches various trips and tours at the attractive tourist destinations all over the world. Companyprovide luxury facilities to all the visitors to provide them a wonderful travelling experience. Thecurrent research study aims at examining the key aspects of business success including pricingand factors that affect business profitability. Moreover, it will examine the key managerial toolslike cost-volume-profit analysis, investment appraisal and other methods of managementaccounting which cited organization can use for growth. Despite this, in order to examinefinancial success or health of the organization, a number of quantitative ratios includingliquidity, solvency and profitability will be compute and accordingly, firm will be suggest to usenew tactics to improve their financial performance. Lastly, various sources from where touroperator can generate funds will be critically evaluated. TASK 11.1 Examine the concept of CVP analysis and its importance Cost-Volume-Profit-Analysis (CVP) is an important tool of cost accounting that gainscrucial importance for the short-term management decisions. The method is used by thecompanies to assess that how changes in various costs elements, selling prices and sales volumewill influence bottom line of the business. The method believes that various costs of thecompany can be classified into fixed or variable cost elements including manufacturing,administrative, marketing and others (Choo and Tan, 2011). As per the case, a major touroperator in London, named EUROCARIB TOURS is keen to invest in a summer holiday trip atCaribbean Holiday Resort lasting 4-week. In order to serve customers with the luxury facilities,it book hotel and airplane for the users. Here, CVP analysis is helpful for the company toperform sensitivity analysis means how its net profitability will be influenced by number of1

potential booking and other factors. The key importance of the tool for EUROCARIB TOURSmanagers to make b better decisions is discussed underneath:Contribution margin: Marginal costing method differentiates fixed & variable costselements and shows it separately. For the planned summer trip, cost of accommodation toprovide luxury hotel facilities to the guests is the fixed costs because hotelier charges a fixed costunder the contract from the company (Weiss, 2010). However, other costs like travelling,documentation, food & beverage facilities are variable costs because it depends on the number ofguests going to the tour. Income statement prepared following marginal costing method subtractstotal variable costs from the turnover to reflect contribution margin. Contribution=Salesrevenue–Totalvariablecosts(TVC)Sales=(Price∗numberofguests)TVC=(Numberofguests∗variablecostseachconsumer)¿(£1,600∗90)–(90∗£400)¿£144,000−£36,000¿£108,000Thus, EUROCARIB TOURS will gain contribution of £108,000 if, there are 90 guestsready to visit the tour. Operating income: Marginal income shows surplus of total income over the totalexpenditures. In other words, excess of contribution over fixed costs is known as operatingincome (Garrison and et.al., 2010). EUROCARIB TOURS incur fixed costs for accommodatingpeople. It is not related to the number of visitors because firm had signed a fixed contract withthe hotelier to accommodate people. Thus, if in any case, company do not have sufficientdemand as per the expectations, then, it will not impact the contract prices because as a result ofadvance booking; hotel will not be able to serve other guests/ Operatingincome=Sales–Variablecosts–¿costsOperatingincome=Contribution–¿costs¿£108,000−£120,000¿£12,000The results shows that if tour operator has a demand of 90 guests wishing to go on thetrip, then firm will bear net loss worth £12,000. 2

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