Finance and Funding Report: Unit 2, Travel and Tourism Management, HND

This report delves into the critical aspects of finance and funding within the travel and tourism sector. It examines the importance of cost and volume management, exploring fixed and variable costs, and their impact on business decisions, with a focus on Merlin Entertainment. The report analyzes various pricing methods, including cost-plus pricing, and considers factors like competition, target markets, and break-even analysis. It further interprets financial statements and investigates diverse funding sources and their distribution, culminating in a comprehensive understanding of financial management within the industry. The report also covers the factors that affect the profitability of a business, including political and economic factors, and seasonal variations, providing a holistic view of financial planning and strategy in travel and tourism.

Finance and Funding

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Importance of volume and cost in management of finance..............................................1
1.2 Different pricing methods that will be used in travel and tourism sector........................2
1.3 Factors by which profits of business will be affected......................................................4
TASK 2............................................................................................................................................5
2.1 & 2.2 Covered in PPT......................................................................................................5
TASK 3..........................................................................................................................................10
3.1 Interpretation of financial statements.............................................................................10
TASK 4..........................................................................................................................................16
4.1 Various sources and distribution of funds......................................................................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Finance is the major requirement that is required to be taken into consideration so that
business can be carried out in the most effective and efficient manner (Evans, Stonehouse and
Campbell, 2012). For this there are various sources from which funds can be obtained and this is
an important decision that is to be made. For this the cost that will be involved in this will be
analysed. Various pricing methods that will be used in travel and tourism sector will be
considered in this report. The various management accounting information that can be used in
the process of decision making will also be described below. For this purpose the financial
accounts will be required to be interpreted with the help of various tools available. Also a poster
will be made in relation to development of capital project in which the distribution of funds will
be presented.
TASK 1
1.1 Importance of volume and cost in management of finance.
In the management of finance cost and volume plays an important role and so is the case
with merlin entertainments. With the help of them the finance that is required will be identified
and then various sources will be considered in relation to it (Swarbrooke and Horner, 2001). In a
business there are various cost that are to be incurred and for that it is necessary that all of them
should be properly analysed. Basically cost is categorised into two parts which are fixed and
variable costs. Fixed cost are those on which there will be no impact of the level of activities
undertaken but variable cost is the one which will be affected with the change in scale of
business. For the identification of cost it will be needed that volume be recognised which will be
including the number of units that are produced by the organisation in a specified period of time.
Between the cost and the volume there exist a direct relation which means that the cost will be
increased with the increase in the the volume and decrease with reduction in production.
In merlin entertainment funds will be required so that all the cost that is incurred can be
met and the activities can be carried out without any hindrance. As the company deals with the
attraction and resorts so in there will lot of cost that will be spend in order to attract large number
of customers. As the prices are increasing in the economy so the overall cost of the company will
be also be enhancing and the company will have to arrange for that. In travel and tourism the
cost in relation to the accommodation and travel will also be increasing so less people will be
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willing to visit different places and in order to attract them it will be needed that merlin
entertainment should undertake some promotional activities and offer such packages which will
be affordable for the public.
As in the competition the chances of loss in the number of customers increase so it should
be taken care off, that the burden of the increase in cost should not be transferred to the
customers and such steps should be taken by which the cost will be reduced so the need of funds
will also be declined. In order to meet the expenses and expand the business funds will be
required which will have to taken from the external sources such as banks and they will be
charging interest in them and also the available finance will be difficult to be allocated among
various departments which will further increase the complexity of the process. So in order to
achieve success it will be relevant for the merlin Plc to consider the impact of both cost and
volume as they both are highly connected with each other (Eagles, 2002). By them the
profitability will be affected to great extent and so it will be very much necessary to take all the
decisions in relation to them by taking into notice all the factors that will be affecting cost and
volume.
In this CVP analysis will be required to be undertaken in which it is identified that how
the income of the company will be affected by the change in the cost and volume. It can be said
that finance will be affected as profit is the amount that is used by the company for the
operations. Another technique which can be used in this is will be the break even profit or loss.
In this break even point will be calculated which is the unit at which there will be no loss and no
profit. So by it the level will be identified at which the company should maintain itself in order to
earn the required amount of profits. So by this it can be said that volume and cost and profit all
are related to one another and will have to be taken into consideration by the merlin
entertainment.
1.2 Different pricing methods that will be used in travel and tourism sector.
In travel and tourism business it is very important that the price in relation to the various
packages should be set in the most appropriate manner so that the maximum profits can be
earned by the merlin entertainment. For the purpose of setting a price it will be required that
fixed and variable costs should be taken into consideration. In fixed cost the expenses will not be
changed and the major expense in it will be in relation to purchase of fixed assets required in
business.
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In variable cost there will expenses that are incurred by merlin entertainment in day to
day conduction of various activities in business (Sharpley, 2006). After ascertaining both the
costs they will be added and then it will be needed that total cost that will be calculated will be
divided among the total customers who will be availing the services of the company. The cost
that will be determined on per person basis will be used by merlin entertainment in the process of
calculation of the price that will be charged in form of package. In order to determine the price
some amount of commission will be added to the cost. There is a method which has been made
in relation to calculation of the price which is cost plus price in which a fixed percent is required
to be added to the amount of cost and the derived value will be the price that will be charged
from the customers. As in this something is added to the cost in order to arrive at the price this
method is known as cost plus price. also there are various factors that will be considered which
are explained here under:
Competition: In the tourism business the level of competition that is faced by the company is
high and so it is necessary that the price that is charged by them should be taken into
consideration so that it can be used in the process of fixation of price. The package price should
be such by which competition can be dealt with in the most effective manner and it should be
noted that whole focus should not be on the cost. So it is very important that the strategy the is
used by competitor should also be considered so that the best price can be fixed which will be
providing benefit to both the company as well as customers. There are various competitors in the
market with whom merlin will have to deal and they include Club corp and Royal orchids hotel.
Target market: In this method a target market is selected in which the expansion will be carried
out and for that the needs of the customers of that market will be identified and then the package
will be developed on that basis and price will be set at that level which the customers of that
market are willing to or will be able to pay. There can be any sector which can be selected as
target market and this may include the children or the families.
Demand in market: In this if the demand in the market is more and customers are willing to pay
for the services of merlin entertainment then it can charge any amount. But it should be noted
that it the chance for the company to increase its sales even more and for that the price should be
set at reduced level by which more number of customers will be attracted and company will have
the opportunity to earn more. An example of this can be that the demand will be low in winter
season and high in simmer season because most of the visitors travel at that time.
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Break even analysis: In the fixation of price it should be noted that in order to deal with the
competitors the price should not be too low as by that the cost will not be recovered and
company will have to suffer losses (Hausmann, 2007). For this break even analysis is the best
technique that can be used as by this that amount will be determined at which the merlin
entertainment will not be making any profit or loss. The amount that will be determined will be
used to fix the price at which required profits can be earned.
Cost plus pricing: This is another method in which certain percentage of profit will be added to
the cost of the product. Then that will be the price that will be charged from the customers.
In addition to them there are various other methods that can be used which includes
marginal and absorption costing, top down method and return on investment. Merlin
entertainment can also use them so that it can ascertain the most appropriate price and by that the
overall profitability of the company will be improved.
1.3 Factors by which profits of business will be affected.
Profit is the main motive behind every business for which it is carried out. This is the
amount that is earned by merlin entertainment after deduction of all the cost that have been
incurred. In relation to it there are various factors by which it will be affected and it is necessary
to consider then so that any adverse impact can be avoided. In travel and tourism sector there are
various business that are carried out which includes restaurants, hotels, travel agencies and they
all will be required to earn profits. The major factors that will be have to be considered are:
 Political factors: In this the factors in relation to government are considered (Morgan,
2004). It means that if the company will be having support of government then it will be
able to generate revenue. In order to maintain the attraction merlin entertainment will be
required to ensure that the vision of museum and other places is ensured so that more
people will visit and if it is not done then profits will be affected.
 Economic environment: As the economy is growing so there will be need that all the
factors should be considered as lot of funds are required which will be arranged from the
external sources and in them interest cost will be incurred. By this the profit will be
affected as if more interest will be paid then profits will be reduced so it is necessary that
the borrowings should be maintained at appropriate level.
 Seasonal variations: In travel and tourism it is the most important aspect that should be
noted as in peak season the number of visitors will be more and in non peak season there
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will be less visitors. So by them profits of the merlin entertainment will be affected. As
there will be lees customers so company will be able to earn less amount of profits.
 Technological factors: The profits of the company will also be affected by the
technology this is because in the changing environment there are various technologies
which keeps on coming and it will be needed that they shall be incorporated in the
business so that by using them the sales of the company can be increased.
TASK 2
2.1 & 2.2 Covered in PPT
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TASK 3
3.1 Interpretation of financial statements.
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