Managing Financial Resources: Cost Classification and Rate Analysis

This report provides a detailed analysis of managing financial resources within an organization, emphasizing financial planning and control to enhance business profitability. It includes two sections: the first calculates fixed and variable costs using data from Cleveland Recreation Centre, and the s...Read More

Managing Financial
Resources

Contents
INTRODUCTION...........................................................................................................................4
SECTION A.....................................................................................................................................4
SECTION B.....................................................................................................................................5
Identify the various expenses given in the under the numerous cost heads................................5
Explain the following with the help of example:.........................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Managing financial resources alludes to the administration of the financial issues which
emerge in an association connected with the monetary preparation and control of the business.
Financial resources of the business are required to be managed well and fine in an organisation to
enhance the profitability of the business (Malik, A. and et.al., 2021). The further assessment is
divided into two sections. In the first section of the report, calculations related to the fixed and
variable costs is done using the provided data of Cleveland Recreation Centre. The second
section highlights the discussion about the various costs and the classification of several expense
was done under these costs. Different rates and indexes which are related to the theory of
financial management are calculated therein.
SECTION A
Question 2
(a) Calculate the fixed and the variable costs for the event committee.
The fixed cost are those costs which are fixed irrespective the number of members attend
the event.
Fixed cost in this event is:
Details Amount
Bathroom Rental 2900
Entertainment 4500
Printing 600
Decorations and Favours 700
Total Fixed Cost 8700
The variable costs are the expense which are borne by the event manager by considering
the number of people attending the event. In this some of the variable costs for the 3000 people
attending the event are:
Details Amount
Printing (9 per guest) 27000
Food (29 per guest) 87000

Decorations and Favours (5 per guest) 15000
Total Fixed Cost 129000
(b) If the charges charged by the Cleveland Recreation Centre by £ 100 per member. Then the
funds that can be raised by the centre will be
= (3000 * 100) – [8700 + (43 * 3000)]
= 300000 – (8700 + 129000)
= 300000 – 137700
= £ 162300.
SECTION B
Question 3
Identify the various expenses given in the under the numerous cost heads.
The several cost which are given for classification can be defined as:
1. Direct Material: These are those materials and supplies that are consumed during the
assembling of an item, and which are straightforwardly related to that item. Things
assigned as immediate materials are normally recorded in the bill of materials document
for an item. The bill of materials orders the unit amounts and standard expenses of all
materials utilized in an item, and may likewise incorporate an overhead allocation. These
cost also includes the scrap expenses borne by the organisation (Swärdh, J.E. and Genell,
A., 2020).
2. Direct Labour: These costs is related to the products which the business manufacture and
the labour used in that production of the goods. Such as the painter, operators, labour
used on the daily wages and many more. In the business which provides services in that
these are the people who provide the services which are directly related to the consumers
such as the lawyers, consultants and many more.
3. Direct Expenses: These expenses are incurred which differ with the changes that re direct
incurred by the volume of the cost of the object. These can be measure by the sales
regions, employees, services, products and much more. In this the material which is used
is used to manufacture the goods and also the cost of freight is included in this (Zurlo, R.
and et.al., 2019).

4. Indirect Production Overhead: It is not a part of the overhead cost of manufacturing the
goods. These costs are also not direct associated with the manufacturing of the service or
the products which are gives to the customers or for products process. It helps in
determining the profitability of the firm and avoids the fraudulent cost that includes some
elements of the indirect overhead into the manufacturing overhead (Hammer, J., 2019).
5. Research and development costs: These costs are used for the development of the
existing products or for the expansion of the product line of the business. These cost are
generally associated with the intangible assets such as the development of the patents etc.
6. Selling and Distribution Costs: These are the expenses which are related by the
distribution of the goods or marketing or selling of the items that are sold by the
organisation. Some of the examples of this type of costs is the insurance, advertising,
maintenance of website, social media costs and many more.
7. Administration Costs: These costs are directly incurred by the business. IT can be the
fixed costs also (Plevri, A., 2020). The example of such costs are – accounting, licencing,
utilities, insurance and many more.
8. Finance Costs: These are the costs which are involved in the borrowing of the mover to
build or expand the business. For example, overdraft charges, interest on loans, etc.
Classification Costs
Lubricant for sewing machines Direct Material
Maintenance contract for general office
photocopying machine
Administration Costs
Telephone rental plus metered calls Administration Costs
Interest on bank overdraft Finance Costs
Market research undertaken prior to a
new product launch
Research and Development Costs
Basic raw material Direct Material
Royalty payable on number of units of
product XY produced
Finance Costs
Road fund licences for delivery vehicles Sales and Distribution Costs
Wages of operatives in the cutting
department
Direct Labour

Developing a new product in the
laboratory
Research and Development Costs
Question 5
Explain the following with the help of example:
1. Average Daily Rate (ADR) – It is mainly used in the industry of hospitality to compute
the average revenue which is earned on the occupied room in a day. It is the Key
Performance Indicator (KPI) of the industry. The ADR shows how much sales are made
per room on an average basis. The better ADR can be evaluated by its rate. The higher
rate determined the better is the ADR. The growth of it proposes that a hotel is expanding
the cash it's making from leasing rooms. To give an increase in the rate, hotels should
investigate ways of elevating the price of per room (De Koning, P.J., 2021).
The management of the hotels look to expand ADR by concentrating on the
strategies of pricing. This incorporates upselling, cross-sale advancements, and free
offers, for example, free transport services to the nearby air terminal. The general
economy is a major component in setting costs, with lodgings and inns trying to change
room rates to match current interest.
For example; In a hotel there are 300 rooms. So, the total revenue earned will be for So the ADR
for the hotel will be
= 150000 / 300 = £ 500.
2. Revenue per available room (RevPAR): It is a measurement utilized in the business of
the hospitality to gauge its performance. The can be evaluated by multiplying the hotel’s
ADR by the occupancy rate of the hotel. It is additionally determined by dividing an
hotel’s complete revenue of room by the total number of accessible rooms in the period
being estimated.
Average Daily Rate = Rooms Revenue Earned / Number of Rooms
Sold

An increment in a property's RevPAR implies that its ARR or its occupancy rate
is improving. In any case, an increment in RevPAR does not really mean better
productivity.
RevPAR neglects to think about the size of the hotel. Thusly, it alone is certainly
not a decent proportion of by and large execution. A lodging might have a lower RevPAR
yet have more rooms that acquire higher incomes.
For example; the hotel has a capacity of 300 rooms, for which the rate of
occupancy is 90 %. So the average cost for the room is £ 200 per day. So the RevPAR
can be computed as –
= 200 * 90 % = £ 180.
3. Average length of stay (ALOS): It alludes to the normal number of days that the rooms
were filled in the hotel. It is for the most part estimated by dividing the total number of
days stayed by all clients during a year by the quantity of releases or discharges
(Stojanovski, J., 2018).
For example; if the room booked is 70 per night in the hotel then in whole year which can
represented by the 14 bookings. So the ALOS will be
= 70 / 14 = 5
It represents that the guests who stayed on an average on 5 nights in the hotel.
4. Occupancy rate, Gross Operating Profit Per Available Room (GOPPAR): It is a KPI
used in the hospitality sector for lodging owners, since it provides them with a thought of
the importance of the hotel for the business.
It is troubled about the quantity of rooms accessible in the hotel, rather than the
number of room that has been sold. Likewise, it sees operating profit, rather than sales
which is generated by selling the rooms of the hotel and it is, subsequently, an excellent
mark of how successful the hotel is.
The gross operating profit can be evaluated by taking the gross income and
deducting the gross expenses borne by the hotel owner. This number can then be divided
by the quantity of rooms accessible in the hotel to give the GOPPAR.
Observing GOPPAR will permit to detect patterns in the genuine business
performance of the lodging house. It very well may be determined consistently, or toward

the finish of a year by dividing the operating profit by the total daily rooms that are
accessible throughout the span of the year.
For example; the total rooms in a hotel is 150 available for 365 days in a year.
The revenue generated by the hotel is 6000000 and the expenses are 2850000. So here
the
Gross Operating Profit = Revenue – Expenses
= 6000000 – 2850000 = £ 3150000
The GOPPAR = GOP / Number of total room available in a year
= 3150000 / (150 * 365)
= 3150000 - 54750 = 57
5. Market Penetration Index (MPI): It is a proportion of how much an item or service is
being utilized by clients contrasted with the total estimated market for that goods or
services. It can likewise be utilized in creating techniques utilized to build the market
share of the overall industry of the products. It can be utilized to decide the size of the
possible market. Assuming the complete market is huge, new business might enter in the
which may be stimulated that they can acquire market share.
It is a unit of estimation used to show the how your lodging's occupancy contrast
with the set of competitors which are previously set. This is especially useful in showing
how your business is doing according to your opposition and the market overall.
MPI = Occupancy rate / Competitor’s set occupancy rate
For Example; a hotel has an occupancy rate of 90 % and the competitor’s occupancy rate is
85 %. So the MPI will be
MPI = 90 / 85 = 1.05
It means that the contrasted clients which come in the hotel in of 1.05 %.
CONCLUSION
The above assessment can be concluded by saying that management of financial resources is
a crucial prospect for the business to achieve success. This management can be done using
different accounting and management theories. Different costs are highlighted in the report
which have been calculated with all the workings provided therein. The variable cost and the
fixed costs are calculated using the different formulations and the methods of cost accounting.

Further the classification of different costs that are occurred in the business are classified into the
actual cost heads in the cost sheet. And the last part discusses how different rates and indexes are
used in the business for its financial management.

REFERENCES
Books and Journals
De Koning, P.J., 2021. CDR in Belgium: The Special Place of the Belgian Residual ADR Body.
In New Pathways to Civil Justice in Europe. (pp. 131-148). Springer, Cham.
Hammer, J., 2019. This is Revenue Management: How the Best Revenue Managers Create
Massive Value. Johan Hammer.
Malik, A. and et.al., 2021. Managing sustainability using financial accounting data: The value of
input-output analysis. Journal of Cleaner Production. 293. p.126128.
Plevri, A., 2020. Alternative Dispute Resolution (ADR) & Online Dispute Resolution (ODR) for
EU Consumers: The European and Cypriot Framework. In EU Internet Law in the
Digital Era. (pp. 367-392). Springer, Cham.
Stojanovski, J., 2018, November. Consistency of publication types and costs among Croatian
Social Sciences journals. In Septentrio Conference Series (No. 1).
Swärdh, J.E. and Genell, A., 2020. Marginal costs of road noise: Estimation, differentiation and
policy implications. Transport Policy. 88. pp.24-32.
Zurlo, R. and et.al., 2019. Tunnel costs related to the quality of the rock mass. In Tunnels and
Underground Cities: Engineering and Innovation meet Archaeology, Architecture and
Art. (pp. 4289-4298). CRC Press.