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Method of Management Accounting : Report

   

Added on  2020-01-21

15 Pages3853 Words123 Views
FINANCE AND FUNDING INTRAVEL AND TORUSIMSECTOR

TABLE OF CONTENTINTRODUCTION.......................................................................................................................................3TASK 1.......................................................................................................................................................3(A) Cost volume profit and its importance to the business firms.............................................................3(B) Analysis of pricing methods that can be used by AHTC...................................................................4© Factors that will influence profit of AHTC..........................................................................................5TASK 2.......................................................................................................................................................62.1 Management accounting information................................................................................................62.2 Investment appraisal for AHTC.........................................................................................................9TASK 3.....................................................................................................................................................113.1 Ratio analysis...................................................................................................................................11TASK 4.....................................................................................................................................................134.1 Sources and distribution of funds for travel and tourism projects....................................................13CONCLUSON..........................................................................................................................................13REFERENCES..........................................................................................................................................14Table 1 Budget for AHTC...........................................................................................................................7Table 2 Actual performance on budget by AHTC.......................................................................................8Table 3 Variance analysis of performance...................................................................................................8Table 4 Calculation of payback period........................................................................................................9Table 5 Calculation of ARR......................................................................................................................10Table 6 Calculation of IRR........................................................................................................................10Table 7 Calculation of NPV......................................................................................................................11Table 8 Ratio analysis of Thomas cook.....................................................................................................11

INTRODUCTIONManagement accounting is an important part of accounting and it is widely used in thebusiness. In this report various method of management accounting are described in detailincluding budget preparation and its analysis. Factors that affect firm profitability are alsodiscussed in the report. Cost volume profit analysis is also done in the report and its results in thereport. In the middle part of the report, ratio analysis is done and its results are also interpreted.Along with this, project evaluation method is applied on the cash flows and best project isselected for the firm.TASK 1(A) Cost volume profit and its importance to the business firmsThere is great importance of concept of cost volume profit analysis. This is because it is amethod that is related with the impact of sales, volume and product cost on operating profit ofthe firm. Means that this tool of management accounting indicates that if price of product willchange then to what extent it will affect operating profit (Zimmerman and Yahya-Zadeh,2011). Similarly, if cost of production will increase then to what extent it will affect operatingprofit of the firm. Hence, it can be said that this method help managers in finding out impact ofsmall change in price and cost as well as sales on profit that firm earned on its business. Costvolume profit analysis is given below.Airplane and hotel50000Per unit meal charge125AHTC750Number of tourists90Target profit10000Fixed cost50000Variable cost11250Sales price67500Contribution56250Cost volume profit1.125

Here, value of cost volume profit is 1.125 which means that at current cost and sales price AHTCis earning profit in its business. First of all cost is computed and then from sales value variablecost is subtracted. By doing so contribution is identified. Finally contribution or profit thatremains after deducting variable cost from sales is divided from fixed cost. By doing this processit is identified that firm is earning profit in its business. This concept has great importance in thefinance management of the travel and tourism business of AHTC (Kaplan and Atkinson,2015). This is because if suppose inflation rate increased then firm managers can estimatepossible changes in the price. On this basis by keeping sales constant firm can identify the extentto which it can earn profit in its business in case of elevation in cost of service. Hence, managerswill formulate a strategy on perfect time so that they can earn sufficient amount of profit inbusiness.(B) Analysis of pricing methods that can be used by AHTCThere are many pricing methods that can be used by AHTC in its business practice.Mark up pricing method- In this method managers determine cost of service and thenadd percentage of margin on cost of service. By doing so firm earn desired amount ofprofit on per unit of sales. It is very easy to apply this method because manager just needsto add margin value on cost to determine sales price (Herman, 2011). Sales price is1000 and firm wants to earn 20% profit on each unit of sales. Then total sales unit will be1200. Hence, this method is also appropriate for the AHTC.Perceived value pricing- In this method there is no costing method but firm evaluatesales price charged by different competitors. Managers analyze perception of people onsales price of the different firms. On basis of such kind of analysis managers will setprice for their service. Hence, this is also pricing method for the firm.There are many pricing methods that are available to business firm. The main problem isto select an appropriate pricing method for the firm and doing same is very difficult task(Baldvinsdottir, Mitchell and Nørreklit, 2010). For selecting appropriate pricingmethod firm required to review pricing strategies that are employed by the competitors in theirbusiness practice. There are many pricing methods that can influence business firms pricingstrategies. Economic conditions of the nation is one of them and along with this change intourism trends in the UK may be one of the factor that may be considered to bring changes in the

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