Report - Merlin Entertainments Plc - Importance Of Cost & Volume

Added on -2020-02-05

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Finance And Funding In The TravelAnd Tourism Sector1
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31.1 ................................................................................................................................................31.2.................................................................................................................................................61.3 ................................................................................................................................................8TASK 2..........................................................................................................................................112.1...............................................................................................................................................112.2...............................................................................................................................................17TASK 3..........................................................................................................................................213.1...............................................................................................................................................21TASK 4..........................................................................................................................................244.1...............................................................................................................................................24CONCLUSION..............................................................................................................................25REFERENCES..............................................................................................................................272
INTRODUCTIONFinance and funding the most important department of organization which handledifferent operations and activities related to management. It facilitates to access cost effectivesources of finance and focuses upon reducing cost of production of the business in themarketplace. It proves to be effective for company to deliver good quality of services to largenumber of buyers in affordable prices. Present report is based on case study of MerlinEntertainments plc which is based on United Kingdom. This is operating its business in 115attraction across 23 countries. The major business segments included in this organizations are;LEGOLAND Parks, Midway attraction and Resort Theme Parks. Furthermore, importance ofcost and volume in financial management of travel and tourism sector has been explained. Inaddition to this, pricing methods used in the same sector are analyzed by taking examples ofthree different types of businesses. Moreover, factors affecting profitability of travel and tourismsector has also been analyzed. Moreover, ratio analysis has been done in order to assess theperformance of cited organization and implement appropriate strategies for improvement of thesame. In addition to this, capital project as new theme park has also been taken and accordinglysources of finance as well as distribution are selected. Apart from this, different types ofmanagement accounting information are explained to represent the financial information relatedto particular financial year. TASK 11.1 Cost is very important element for setting price of products offered by corporation. Thishelp business to add margin on products and services to so as to enhance overall rate of return.However, generally cost is considered as money used for production of goods and services. Itproves to be effective to cater need of personnel and ensure their well being (Acton, 2013). Themain purpose of cost is the assess the actual price of product and services in to ensure consistentflow of production. The importance of cost and volume in financial management can be assessedin the following manner-Direct cost-It is the cost which is incurred while producing effective tour packages. Forexample, all the operation cost of production Merlin Entertainment will be considered3
under direct cost. This cost is very important which general include direct labour,material and other related aspect. However, fuel and gas and other inputs of product playsimportant role in considering this cost (Allen and Economy, 2011). Though, direct cost isconsidered in every business for assessing its direct impact on margin as well asproduction. The occurrence of direct cost is based upon sales of tour packages and actualcost incurred to render services. According to the case study Merlin entertainment occurdifferent kind of cost such as fuel for bus, wages for bus tour and room cleaning, nationalpark permits as well as meals whilst on tour. Apart from this, direct labour and materialinvolved in rendered services are considered as direct cost of Merlin entertainment. Indirect cost-It is another type of cost which includes indirect material, labour etc.However, other cost related to stationary and office suppliers as well as overheads areincluded by management of Merlin entertainment to ascertain price of services rendered.At the same time, other factors such as energy cost, fuel charges and cleaning as well asrepair cost are also considered by cited corporation. Here, indirect cost for MerlinEntertainment will be considered for setting actual price of product and accordingly takedecision related to selecting of effective strategy for enhancing sales turnover (Cesarotti,Silvio and Introna, 2009). Fixed cost-This cost remain fixed for Merlin entertainment and does not vary as per theincrease and decrease in number of total tourists (Elmassri and Harris, 2011). Here,lighting, rent and rates come under fixed cost which generally remain constant. This alsoconsists of other kind of method under which some of part of cost remain fixed and someremain variable. According to the given case study, Merlin entertainment occur differentkind of fixed cost such as accounting and legal fee, depreciation, insurance and otherbusiness as well as premises cost. On the other hand, salaries and rent are also includedin the same. However, some of the aspects tend to varies after reaching at certainproportion. For example, fixed amount of electricity's bills is paid whether it is use or not.In this manner, fixed cost remain same for the business in case Merlin entertainmentserve one customer or 100 at a time. This cost is usually added while calculating cost ofservices because it does not vary in accordance with number of tourists or tour packages.4
5201120122013201420150510152025303540Central costIllustration 1: Central cost
Variable cost-It is well know fact that some of the expenditure keep on increasing withnumber of customers or tourists (Grieve, 2013). Owing to this, company need to take careof cost incurred in each segment and accordingly decision related to the same can betaken. This type of cost consists of different aspects such as wages and salaries of staffwho are driving or doing work related to cleaning. Apart from this, cost of food andbeverages as well as telephone charges are also involved. Therefore, variable cost variesin accordance with changes in volume of sales. Thus, it is considered as indirect costwhich tend to increase price of services paid by tourists.620112012201320142015020406080100120140Net finance costIllustration 2: Net finance cost
According to the above mentioned graph,cost of sales is 193 m pound whereas rent ofthe corporation was 596. In the same manner, rent was 87. This is showing that cost of isappropriate with respective to profitability. It is because profitability is 1278 whereas cost ofsales was just 193. In this manner, corporation can easily generate greater rate of return.7
Volume in financial managementVolume in financial management is another important aspect which is considered bymanagement in order to determine the actual situation of business in the marketplace. Here,company can get information related to volume by finding break-even point. This break evenpoint is calculated with the help of cost benefit analysis.(Source:Break-Even Analysis and Forecasting, 2015)Under this company identify what is the total cost and what is the total profit generatedby the same (Kierulff and Petersen, 2009). Owing to this, company need to ensurecompliance of all related work and accordingly all related objectives can be achieved inparticular time. It reflects that business can be conducted in an effectual manner withassessment of potential profit derived from several tourist activities of Merlin Entertainment.For example, above mentioned diagram is showing that profit and cost and income of8Illustration 3: Break-even point

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