Managing Financial Resources: Prime Cost, Production Cost, Sales & Distribution Cost, Budgeting and Forecasting, Variance Analysis, Average Daily Rate, RevPAR, ARI, MPI, Customer Satisfaction

This article covers managing financial resources in detail, including prime cost, production cost, sales & distribution cost, budgeting and forecasting, variance analysis, average daily rate, RevPAR, ARI, MPI, and customer satisfaction. It provides examples and formulas for each topic and explains their importance in financial performance.

Managing Financial
Resources

TABLE OF CONTENTS
MAIN BODY...................................................................................................................................3
SECTION A.....................................................................................................................................3
Question 1....................................................................................................................................3
SECTION B.....................................................................................................................................5
Question 4....................................................................................................................................5
Question 5....................................................................................................................................8
REFERENCES..............................................................................................................................11

MAIN BODY
SECTION A
Question 1
A) Prime Cost
Prime cost is calculation of the total direct cost of production which includes raw
materials and labour (Nowak and et.al.,2019). In the calculation of the prime cost all the other
indirect costs are not included which includes the utilities, manager salaries and delivery cost.
This prime cost of the organization is calculated with the addition of cost of raw materials with
the direct labour of the organization.
Particulars Amount £
Total cost of raw materials £320000
Direct labour cost £200000
Prime cost £520000
From the above table the calculation for the prime cost has been shown. In this
calculation the focus has been provided in the computation of the direct expenses which are
related to the production of the organization. The components which are present in the
contribution of the estimation of the prime cost. The materials which are consumed are directly
related to the production cost and also the cost of labour.
B) Production Cost
The production cost of a business is the inclusion of the variety of expenses that are raw
material cost, labour cost, general expenses (Tanaka and Respati, 2021). The total production
cost is considered to be the total of all cost of product in which the addition of the all the direct
materials and the labour cost is done with the manufacturing expenses.
Particulars Amount
Cost of Raw materials in production £320000

Total Labour cost incurred £200000
Factory supervising wages £120000
Computer overhead £6000
Depreciation expenses £13000
Other production Costs £70000
Total production cost £729000
In the following calculation the formula for calculating the Total production cost has
been used in which is,
Direct Labour+ Direct Material+Overhead Cost of Manufacturing
In this illustration the consideration of the several costs of the organization which
includes the total enterprise and several costs that are specific to the organization are included
like raw materials, labour, factory supervising wages, depreciation on machinery and also other
product costs. For the calculation of the depreciation of machinery and building has been added
(8000+5000)= 13000.
C) Sales & Distribution Cost :
Selling expenses are considered to be those expenditures which the firm makes for the
promotion of the sales and services which are provided to the customers (Selling and
Distribution Overhead: Meaning, Accounting Treatment and Control, 2020). Distribution
expenses is the one which the firm has to incur for the warehousing and storage, packing for
goods sent and makes the goods available for the delivering of the customers.
Particulars Amount
Selling wages £18300
Marketing salaries £25000
Commission for sales to staff £1200

Depreciation including office and delivery van £6000
Total sales and distribution £50500
From the above calculation is made in the form of paying wages which sell the workers
specific products. All the expenses which are related to the selling and distribution practices of
the firm has been included and the depreciation is considered to including the office and delivery
van as they are included in the selling and distribution expenses.
D) Total Cost :
The total cost of the firm shows that the expenses which are incurred in the reaching a
certain level of output which is considered to be helpful for the quantity produced and the
average unit cost which is obtained. The total cost include all the different types of costs such as
the cost of labour raw materials and the change in the level of output.
Particulars Amount
Prime cost £523600
Total production cost £732600
Total selling and distribution expenses £50500
Total administration cost £103500
Total cost £1410200
The total cost is very helpful for the actual calculation of the profit which the
organization makes from its business practices. This table shows the importance of all different
typos of cost in the inclusion of total cost of production. It can be said that with the help of this
calculation the firm is also able to make a comparison with itself past performance and other
competitors in order to understand the effectiveness financial performance.
SECTION B
Question 4
Budgeting and Forecasting :

Budgeting is the identification of the expected revenues which helps the business to
achieve in the future predictions. The financial forecasting of the organization helps in the
amount of revenue or income or the income to be analysed in the future period according to
which the business is able to plan its practices (Bazot, 2018). Forecasting is the process of
predicting the future expenses which the business would have to incur in the future in order to
plan a proper budget for meeting them. There are different types of budgets that a firm can utilize
such as, performance, fixed, incremental, flexed, zero based and also cash budget. In the
following example the budget has been shown for the four upcoming years,
Particulars Year 1 Year 2 Year 3 Year 4
Forecasted Sales 10000 11000 12000 12500
Per unit price of
product 50 60 55 65
Total Gross Sales 500000 660000 660000 812500
-Sales discount &
allowances 22000 35000 15000 30000
Net sales 478000 625000 645000 782500
Variance Analysis :
It is a part of management accounting in which the study about the deviations of the
actual financial trends in comparison to the forecasted ones are planned and the behaviour of that
is considered to be the essential concerned with the difference of the actual and planned
behaviours and also the indication of how its impacts the performance of the firm (Horton,
2021). It helps in the calculation of the difference between the actual spendings of the business in
the comparison to the business spendings. For example,
Particulars Budgeted Actual Variance
Number of units 10000 11000 -1000
Material 660000 500000 160000

labour 150000 100000 50000
Overhead expenses 90000 80000 10000
0
Total production cost 900000 680000 220000
This examples show the change in the budgeted and actual performance of the
organization which is calculated as variance.
Flexible Budget :
A flexible budget is the adjustment of the activity of the organization which helps it in the
calculation of the volume levels of the firm (Lavrador and Laureano, 2019). It is the budget
which is considered to be adjusted with the establishment of the changes in the amounts when
the budget is created. This budget is considered to be the reflection of the state of the finances of
the organization. It is helpful for the determination of the output for the management. It helps in
tracking the areas which are spent by an organization to be spent in a year. For example,
Budgeted per unit
cost
Per
unit
Original cost
(60000 units)
Flexible budget
(85000 units)
Flexible budget
(110000 units)
60000 85000 110000
Variable cost
Indirect material 0.55 33000 46750 60500
Indirect labour 0.5 30000 42500 55000
Total variable cost 1.05 63000 89250 115500
Fixed cost

Depreciation for
administration 4000 5500 4500
rent 3000 6000 5000
Total overhead 70000 100750 125000
This example shows the flexibility of the budget which is concerned with the adaptation
of the changes which are calculated. This example shows that flexible budget can quickly and
easily adapt the alteration according to the financial situation which can make significant
changes in the organization.
Static Budget :
This is that kind of budget in which there are not changes despite the alteration of the
activities (Hillman and et.al., 2018). This is also considered as the fixed budget and it helps the
business in the incorporation of the anticipation values of inputs and outputs. For example,
Particulars Actual Budgeted
Static budget
Variance
Volume 15000 12000
Accumulated cost 8500 7500 1000(U)
Fixed overhead 25000 22000 3000 (U)
Total 33500 29500 4000(U)
Direct Labour Variances :
Direct labour cost variance is known as the difference between the standards cost of the
actual production and the actual cost of the production for the difference between the standard
cost and the actual cost paid for the given number of hours.

The calculation of the direct labour time variance is done with the help of the following formula,
= Actual hour worked * Standard rate per hour - Standard hour* standard rate per hour
= 7*11 – 9*7
=77-63
= 14
Question 5
Average Daily Rate :
Average Daily Rate measures the average rental revenue earned for the occupation of the
room per day. This is considered to be the operations which impacts the performance of the hotel
in the lodging business which can be determined by the use of ADR, multiplication of ADR with
the occupancy rate is helpful for the calculation of the revenue per room. The formula for the
calculation of the Average Daily Rate is,
ADR = Rooms Revenue Earned/Number of Rooms Sold
For example there is a hotel with a room revenue of £80000 and the total of 500 rooms
sold is the total ADR for the Hospitality organization is 80000/500 = 160
Revenue per available room(RevPAR) :
This is the tool which is used by hospitality organization for the calculation of the
performance measurement in the hospitality industry (Xuyun, Yan and Xiaotian, 2020). The
calculation of the hotel's average is also known to be applicable in its occupancy rate. This is
considered to be calculated through the division of the total room revenue and also from the total
number of rooms which are available in the given time period. For example the total number of
rooms which are there in a hotel are, 250 for which the occupancy rate is give at 95%. Average
cost which is incurred by the hotel for a single room is £800 therefore this helps in the
calculation of RevPAR = per night cost multiplied by occupancy rate.
= (800*95%)
= £760.00
This calculation of the revenue of the per available room assumes that all the rooms have
same price.
Average Rate Index :

Average Rate Index (ARI) is a index used in the hotel industry which shows the
comparison of the rates with the other hotels. It is considered to be very helpful in the
determination of the ways in which the firm can increase or decrease the rates. Formula of ARI
= Organizations ADR/ Competitors Average ADR
For example,
Given
Competitors ADR = 500
Room Revenue =£55000
Total Number of Rooms = 100
Organizations ADR = (55000/100)
=550
Therefore,
ARI = 550/500
=1.1
This rate shows greater than 1 which indicates that the hotel's average prices is higher
than that of its competitors.
Market Penetration Index :
This unit is considered to be the measurement of the hotel's occupancy which helps in the
comparison of the preselected set of competitors (Nyoman and et.al., 2019). This is considered to
be very helpful for showing the business and its relations with the competitors and in the market.
Formula for calculating this is MPI = Your occupancy rate / selected set of Competitors
occupancy rate,
For example, Occupancy rate is given at 95% and the set of competitors have the occupancy rate
of 90%.Therefore,
MPI= 95%/90%
= 1.055555556
Customer Satisfaction :
Customers satisfaction is considered to be the known as the measurement of the
happiness of the customers and its products, services and capabilities. It can be said that the
customer's satisfaction is known as the inclusion of surveys and ratings which helps the company
in the determination of the way of improving the hospitality services. The customer's satisfaction

cannot be measured in quantitate form however, Organizations are able to measure it through
analysing the customer they have retained. For example,
Formula for calculating Cs= (The total number of 4 of 5) / number of total respondents *100%
In the given case there are 72 out of 100 responses given, if the average response from
the customers rating is of 4 of 5 the its is at 80%, thus, it can be said that the majority of the
customers are satisfied.

REFERENCES
Books and Journals
Bazot, G., 2018. Financial consumption and the cost of finance: Measuring financial efficiency
in Europe (1950–2007). Journal of the European Economic Association. 16(1). pp.123-
160.
Hillman, D., and et.al., 2018. The economic cost of inadequate sleep. Sleep. 41(8). p.zsy083.
Horton, A., 2021. Liquid home? Financialisation of the built environment in the UK’s “hotel‐
style” care homes. Transactions of the Institute of British Geographers. 46(1). pp.179-
192.
Lavrador, A.M.S. and Laureano, R.M., 2019, June. Dashboard to monitor performance of an
hotel in the financial perspective. In 2019 14th Iberian Conference on Information
Systems and Technologies (CISTI) (pp. 206-211). IEEE.
Nowak, J., and et.al.,2019, September. Differences in the Cost Calculation for Construction
Work, Road Transport and Water Supply. In IOP Conference Series: Materials Science
and Engineering (Vol. 603, No. 3. p. 032086). IOP Publishing.
Nyoman, A.N., and et.al., 2019. DEVELOPING OF SALES ACCOUNTING MODEL HOTEL
SUPPLIER ON GROWTH OF BUSINESS REVENUE. International Journal of
Applied Sciences in Tourism and Events. 3(2). pp.122-130.
Tanaka, G.M.P. and Respati, H., 2021. Cost of Inventory Calculation Analysis Using The Fifo
and Lifo Methods. Economic Research. 5(4). pp.109-120.
Xuyun, B.A.I., Yan, G.U.O. and Xiaotian, W.A.N.G., 2020, December. Measurement of Hotel
Service Quality Based on Online Comment Sentiment Analysis. In 2020 Eighth
International Conference on Advanced Cloud and Big Data (CBD) (pp. 89-95). IEEE.
Online
Selling and Distribution Overhead: Meaning, Accounting Treatment and Control, 2020[Online].
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