Managing Financial Resources - Desklib

This article covers topics such as computation of fixed and variable component, calculation of money raised, variance analysis, adverse and favourable variance, flexible and static budget, ADR, RevPAR, average length of stay, market penetration index, and customer satisfaction. It also provides solved assignments, essays, dissertation and more at Desklib.

MANAGING FINANCIAL
RESOURCES

Table of Contents
SECTION-A....................................................................................................................................3
Question 2....................................................................................................................................3
SECTION-B....................................................................................................................................4
Question 4....................................................................................................................................4
Question 5....................................................................................................................................6
REFERENCES................................................................................................................................1

SECTION-A
Question 2
A) Computation of fixed and variable component
Fixed and variable component play and important role in every project. Fixed cost refers
to the cost which remain fixed during the entire project (Choi, 2018). The fixed component will
remain fixed irrespective of production or the sales of product. While the variable component of
cost remains fluctuates and changes as per the production and sales of the product and the service
(Fan, Guenther and Wu, 2020). This means it remain changes as per the sales or production of
the number of products. In the above question the fixed component include:
Fixed cost/component Amount (£)
Ballroom rental £2900
Entertainment £4500
Printing £600
Decoration & favours £700
Total £8700
Variable component Amount (£)
Printing £9 per guest
Food £29 per guest
Decoration & favours £5 per guest
Total £43 per guest
It can also be defined as:
Variable component Amount (£)
Printing £ 27000 (3000*9)
Food £ 87000 (3000*29)
Decoration & favours £15000 (3000*5)
Total £129000
Note: Here, it is assumed that all the 3000 people attend the event.

b) Calculation of money raised
The money which can be raised from the event would be calculated as:
Sales £300000 (3000*100)
Less:
Fixed cost £8700
Variable cost £129000
Profit £162300
In order to identify the calculation of money that would be raised from the event, the sales
which would be made from the event would be counted as overall revenue from which both the
fixed and variable cost will be deducted. This will give the profit or the exact amount of money
that will be raised from the event.
As per the above calculation it would be right to said that the conduction of the event would
raise the money in because while making a deduction of all the fixed and variable component of
cost the event still earn money i.e. £162300 which shows the success of the event along with its
profitability. As under the given case it was assumed that the all the expected 3000 people would
make a participation in the event which make the variable cost to be £129000 and as fixed cost
i.e. £8700 will remain fixed instead of the fact that how many number of people would attend the
event. And as the charge per person is £100 which is multiplied by number of participants that
gives £300000 amount of revenue. Lastly, after making a deduction of all the cost the net amount
that would be raised from the event would be identified i.e. £162300.
SECTION-B
Question 4
2. Variance analysis
It refers to the analysis under which variances can be identified i.e. with the help of
variance analysis the deviation between the actual performance and the planned and forecasted
performance can be identified and analysed (Batur, Wang and Choobineh, 2018). This will assist
in raising the efficiency of production in terms of taking of corrective actions as per the
deviation. This can be understood with an example that: suppose a company ABC makes sales

forecasting of £2000 at the yearend 2021. Later when it will be compared with the actual sales of
the company and found that the actual sales were £1800. This shows the variance analysis under
which a variation of £200 was found. This will assist the company in terms of raising the
efficiency in terms of raising efforts and cover deviation.
3. Adverse variance
It is a type of variance which occur and noticed when the actual sales are less than
budgeted sales or the actual expenses is more than budgeted expenses. This means when the
actual outcome is less than the projected and forecasted outcome then it will be termed as
adverse variance. This is bad for the organization because with the occurrence of adverse
variances the company would be affected negatively in terms of its decline in sales and raising of
expenses. This can also be understood with an example that suppose the company ABC make an
estimation of expenses of £1500 till the end of year 2021. And when it was compared with the
actual expenses it was found that the expenses were £2000. This shows that the adverse expenses
under which the actual expenses were more than estimated.
4. Favourable variance
It is just opposite of adverse variance in which the actual expenses were usually lower
than forecasted expenses and the actual income would be higher than the forecasted income
(Odu, 2019). This is considered as good for the business because with the grabbing of favourable
variances the organization can achieve success or it would be right to said that it reflect the
success of the business. This can be explained with an example i.e. suppose a company ABC
projected the income of £2000 and expenses as £1500 for the year end 2021. When it compared
with the actual income it was found that the actual income earned was £2500 and actual expenses
was £1200. This is termed as favourable variance because here the actual income is higher than
the estimated and actual expenses were less than estimated expenses.
5. Flexible budget
It refers to the budget under which the cost associated with the budget get fluctuate and
changes as per the change occurred in the cost. This budget adjusts the activity or volume level
of the company. It reflects accurate state of finance (Mouter, 2021). As per the occurrence of

variation in the production and sales the flexible budget also varies. With the use of this budget
better opportunities can be grabbed by the business. In the same way it reflects more accuracy in
terms of finance. On the other hand, it is time consuming and more attention and maintenance.
For example: Suppose the company XYZ has a budget of £10 million of revenue and the cost of
goods sold was £4 million. Under £4 million of COGS £1 million is fixed while the remaining £3
million is flexible. This shows that the variable portion of COGS is 305 of revenue. When the
budgeted period is completed it was found that the actual sales were £9 million. Here as per
flexible budget, the £1 million will remain fixed while the variable cost would become £2.7
million. This shows that the resulted COGS would be £3.7 million with respect to the sales of £9
million of sales.
6. Static budget
It is a type of budget under which anticipated value related with input and output would be
conceived before the period begin. The results of static budget are usually different from the
actual figures. Under this budget the fixed amount related with sales, revenue and expenses
would be identified (Azizi, Kveton and Ghavamzadeh, 2021). As per the stated budget the
company make distribution and imply its resources. The use of this budget is easy and it does not
require any kind of modification as per the changing situation and occurrence of fluctuations.
However, it lack the aspect of flexibility which affect the efficiency of the budget. This can be
understood with an example that if the company ABC make an estimation of marketing
campaign as £15000 for the year 2021. Now it is depended up to the managers that how they
make compliance with the budgeted expenses and make the performance of their operation.
Question 5
1. Average daily Rate (ADR)
The average daily rate measures the average rental revenue that can be earned with
respect to occupying of room per day. With the use of ADR the operating performance in respect
to hotel can be identified and determined. The rising ADR reflect the positive performance of the
hotel. This means if the ADR of the hotel raise then it shows that the revenue and performance of
the hotel also enhance.

It can be calculated from formula i.e. average revenue earned from rooms that will be
divided by number of room sold. Under this the complementary rooms allotted to hotel staff
would be excluded.
For example, the suppose the hotel has a total of £100000 revenue and the number of rooms
is 500. Then ADR would be equal to £200 per room.
2. Revenue per available room
It is one of the important performance measure that is used in hospitality industry. it can be
calculated by multiplying the hotel average daily room rate with the occupancy rate
(Chattopadhyay and Mitra, 2019). With the use of RevPAR, the hotels can make measurement of
overall success of their hotel. As there will be of no use to run the business until the adequate
revenue would not be earned. Thus, with the use of RevPAR the success of the business would
be analysed in terms of generation of revenue by the business.
Its formula is room revenue divided with room available.
It can be explained with an example i.e. if the ADR of the hotel is £100 per room and the
occupancy rate is 80% then the RevPAR would be £80.
3. Average length of stay
It is usually used in hospital under other related industry. It can be defined as the average
number of days the patient diagnosed with the same disease and falling under the same category
lies in the hospital bed. It is an indicator through which the efficiency would be measured i.e.
with an assumption that all other things would be constant, shorter the stay will reduce the cost
of discharge of patient along with shift care. In short, it measures the number of days the patient
stays in the hospital.
It can be calculated with a formula i.e. dividing the sum of inpatient days with the
number of patient admitted with the same diagnosis.
For example: there are four patient named as John, Maria, Joseph and David admitted in
hospital. John was admitted on 01/01/2022 and discharged on 05/01/2022. Maria was admitted
on 04/01/2022 and discharged on 07/01/2022. Joseph was admitted on 10/01/2022 and
discharged on 13/01/2022 and David was admitted on 02/01/2022 and discharged on 06/01/2022.
With this information the average length of stay would be calculated as:

Number of patient: 4
Number of days John admitted: 5 days
Maria admitted: 4 days
Joseph admitted: 4 days
David admitted: 5 days
Thus, average length of stay would be: 5+4+4+5/4
= 4.5 days.
6. Market penetration index
It refers to an index which measures the penetration of hotel in the market. with the use of
Market penetration index the occupancy of the hotel in the market in comparison of the
competitors would be measured (Viktorov, 2020). It shows the performance of the hotel in the
market with the comparison of the competitors. This is an important factor for every business
because if the organization with the use of its products and services is not able to capture the
market share or penetrate in the market then it will not be able to sustain in the market and the
competition of the market. Thus making an analysis of market penetration by the business is
highly important.
It can be calculated as current sales volume of the product or service that will be divided
by the total sales volume of similar products, including those which are sold by the competitors.
And if the result is multiplied by 100 then the percentage will be grabbed.
This can be explained with an example i.e. if there are 200 million of household present
in the market and out of them 10 million is of home automation device then the market
penetration would be equal to 5%.
7. Customer satisfaction
It can be defined as the measurement which shows that how happy the customers are with
respect to the use of company’s product and services and capabilities. With the use of this
measure the company can make improvement in the existing product and services so that the
customer satisfaction would be raised and enhanced (Budur and Poturak, 2021). It has a major
role in the company’s sales and revenue generation. This is an important component in respect to
every business because if the customers of any business are not satisfied with the products and

services of the business then it will lead to have a direct and negative impact towards the
business.
This can be determined as total number of 4 and 5 responses divided with number of total
responses*100. With the use of this method the customer satisfaction can be measured.
The best evidence and example with regard to the measurement of customer satisfaction
is related with the reviews and feedback received from customer in respect to the company’s
product. in the same way the satisfaction can be measured with the comparison of actual sales
with the past sales data of the company that truly reflect the customer satisfaction i.e. inclining
sales trend of the business.

REFERENCES
Books and journals
Azizi, M., Kveton, B. and Ghavamzadeh, M., 2021. Fixed-Budget Best-Arm Identification in
Contextual Bandits: A Static-Adaptive Algorithm. arXiv preprint arXiv:2106.04763.
Batur, D., Wang, L. and Choobineh, F.F., 2018. Methods for system selection based on
sequential mean–variance analysis. INFORMS Journal on Computing. 30(4). pp.724-738.
Budur, T. and Poturak, M., 2021. Employee performance and customer loyalty: Mediation effect
of customer satisfaction. Middle East Journal of Management. 8(5). pp.453-474.
Chattopadhyay, M. and Mitra, S.K., 2019. Determinants of revenue per available room:
Influential roles of average daily rate, demand, seasonality and yearly trend. International
Journal of Hospitality Management. 77. pp.573-582.
Choi, H., 2018. How to Handle Fixed Cost in Business Accounting. Available at SSRN 3179288.
Fan, Q., Guenther, D.A. and Wu, K., 2020. Fixed and Variable Tax Expense and the Cost of
Equity Capital. Available at SSRN 3575256.
Mouter, N., 2021. Willingness to allocate public budget and Participatory Value Evaluation.
In Advances in Transport Policy and Planning (Vol. 7, pp. 83-102). Academic Press.
Odu, G.O., 2019. Weighting methods for multi-criteria decision making technique. Journal of
Applied Sciences and Environmental Management. 23(8). pp.1449-1457.
Viktorov, D., 2020. Market penetration of a Finnish start-up operating as an online marketplace
for freelancers.
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