Travel and Tourism Finance: Cost, Volume, Profit, and Funding Sources

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FINANCE AND FUNDING IN TRAVEL
AND TOURISM SECTOR
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Table of Contents
INTRODUCTION........................................................................................................................4
LO1........................................................................................................................................... 5
1.1 EXPLAIN THE IMPORTANCE OF COSTS AND VOLUME IN FINANCIAL MANAGEMENT
OF TRAVEL AND TOURISM BUSINESSES...............................................................................5
1.2 ANALYSE PRICING METHODS USED IN THE TRAVEL AND TOURISM SECTOR..................7
1.3 ANALYSE FACTORS INFLUENCING PROFIT FOR TRAVEL AND TOURISM BUSINESSES.....9
TASK 2- TRAINING PACKAGE.................................................................................................. 11
TASK 3.................................................................................................................................... 21
3.1 INTERPRETATIONS OF THE FINANCIAL ACCOUNTS OF FULHAM SHORE PLC................21
TASK 4.................................................................................................................................... 25
4.1 ANALYSE SOURCES AND DISTRIBUTION OF FUNDING FOR THE DEVELOPMENT OF
CAPITAL PROJECTS ASSOCIATED WITH TOURISM..................................................................25
CONCLUSION.......................................................................................................................... 28
REFERENCES........................................................................................................................... 29
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INTRODUCTION
This assignment is prepared to gain insights about the importance and understanding of
volume, cost and profit for decision making of management in travel and tourism. This
report also provides the understanding of the use of the information for the management
accounting as the tool for the decision making. Further, there is also the interpretation of
the financial accounts that assist in the decision making in the business of the travel and
tourism. In the end, the assignment also provides the distribution and sources of funding for
the public and non – public in the tourism development.
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LO1
1.1 EXPLAIN THE IMPORTANCE OF COSTS AND VOLUME IN FINANCIAL
MANAGEMENT OF TRAVEL AND TOURISM BUSINESSES
Financial management is associated with funds arrangement and utilization in the business
operation of Carnival Corporation plc. It is found that that the business of the Carnival Corp.
is comprised of various costs and expenses that need to be incurred for the development of
the tour packages and holiday packages (Laudon and Laudon, 2016).
There are diverse costs which are incurred in the travel and tourism business and it is vital
to have asses the price of the holidays. Carnival Corp. can use following factors for effective
decision making in the tour and travel business which are as follows:
COSTS: The cost for the Carnival Corp can be defined as the all associated expenses of the
business that are being incurred for the development of tour and holiday packages for the
customers. And it also includes all other costs which are incurred within this business (Adam
et al., 2003). Carnival corps incurred many types of costs and expenses for the creation and
development of the holiday packages which are:
Direct cost: Direct cost in context to the Carnival is all direct expenses that are incurred over
the services that are offered by the organization in the business packages of the tour and
travel to their customers such that hotels, spas, facilities, foods etc.
Indirect cost: Indirect cost for the business functioning of the Carnival are the costs and
expenses which are related with the other activities of the business and which are indirectly
incurred in the business such as developing websites, advertisements, to hire professionals
etc. (O'Brien and Marakas, 2006).
Cost can also be categorized on the basis of their behaviour in which the output cost is
influenced by the changes in the activity level.
Fixed costs: These are the type of costs in context to the Carnival Corp. which are not
dependent on the output and they do not change in respect to the level of sales. Fixed costs
include rent, machinery, building etc.
Variable costs: These are the type of costs which changes with the output. And this cots
increase at the fixed rate in respect to the capital and labour (Hague, 2018).
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VOLUME: Business must also consider the volumes in business always in the peak season.
The business is being operated all over the world. Carnival Corp. is providing its services all
over the world and there are the various tour and travel packages that are used by the
business for computing the volumes of the package of the business so that it can generate a
higher amount of profits like break-even analysis and many more (McLeod and Schell,
2007).
Profits: Profits can be defined as the final outcomes of all operational activities of the
business organization. It is defined as that amount which is the difference of cost of the
holiday packages and earned revenue by Carnival Corp.
Importance of cost, profit and volume of Carnival Corp. plc:
Cost: It helps Carnival Corp. to decrease the prices of the holiday packages. Cost is the
important part of the Carnival Corp. as it helps the business to have an idea about the total
expenses in the business (Kaplan and Atkinson, 2015).
Volume: with the help of higher and growing level of the volume, a business can easily
decrease the cost of the tour packages and along with this it also assists in increasing the
profit in the determined method.
Profit: It helps business to get back all the money which incurred in the business and it
provides a required fund for the betterment of the functioning of the business (McLeod and
Schell, 2007).
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1.2 ANALYSE PRICING METHODS USED IN THE TRAVEL AND TOURISM
SECTOR
Carnival plc is providing many services and various different tour and travel and holiday
packages to the customers. The business is using many effective and different pricing
strategies to provide the effective price of the diverse tour packages (Kaplan and Atkinson,
2015).
Figure 1: Pricing methods
[Source: Kaplan and Atkinson, 2015]
Methods of pricing: To increase the share of the market of the business of Carnival Corp,
the business is using different pricing methods that are as below:
Cost-plus pricing method: Carnival plc makes use of this method for setting their prices. This
pricing method includes all available cost that is fixed and variable costs. After adding all
costs it mark-up amount is also added to determine the profit share. Using this method
provides setting the reasonable prices for the product and it also helps in earning the proper
level of profit with the help of it (Adam et al., 2003).
Market-led pricing method: This pricing method is used by the companies for the
evaluation of the prices of the same tour package of the market. Carnival plc analyses prices
of the services and facilities of the competitors and they set the prices according to the
comparison between the tour packages of the competitors and companies tour packages.
Marginal costing pricing method: Carnival plc decide the prices according to the marginal
pricing method and this method allows to charge the product which is equal to the
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additional and extra expenses that are involved in the organization of the other tour
packages (Hague, 2018).
Carnival plc adopts mostly cost-plus pricing method in deciding the tour packages and
company can also adopt the above-mentioned method and should also consider the other
factors while deciding the other factors.
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1.3 ANALYSE FACTORS INFLUENCING PROFIT FOR TRAVEL AND TOURISM
BUSINESSES
Profit refers the financial gains that are earned in the business from the other operational
activities. Profit is the focal point for every organization. The reason for making a profit by
Carnival plc is to cover the cost and expenses incurred in the business. Profit helps to attract
the new business that can be used for business expansion and it also increases and
encourages efficiency (Vellas, 2016).
FACTORS INFLUENCING AND AFFECTING PROFIT
INTERNAL FACTORS
Bad Debts: In the case when Carnival plc sells goods on the credit they do not receive the
cash immediately. Mostly it takes one month to receive the payment from the company.
These are the debts which cannot be recovered in the business and this is charged as the
profit expenses to the loss and profit account. The increase in the bad debts will decrease
the profits (Lo et al., 2016).
Planning: The planning of the future includes the estimation of the needs for investments
and profits for the future. And this is estimated on the basis of the local conditions and
situations but the conditions of the market can be also different.
Staff: Staff constitutes the major and main cost to the business and it includes salaries,
pension and wages. On increasing the staff number it has an impact on the profits and
operating expenses (Vellas, 2016).
EXTERNAL FACTORS
Political environment: Political environment that affects the profit includes stability of the
government, taxation policy, regulations for foreign trade and policies for the social welfare.
Carnival plc plans the holiday packages considering rules and regulations and thus changes
in the political environment affects the profit margin of the company (Saleem, 2017).
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Economic environment: This is the important factor that can affect the profit of the
organization and it includes the changes in the rate of interest and also fluctuations in the
exchange rate etc. and this all have an effect on the monetary transactions of the business
which are directly affecting the profits.
Social environment: The changes in the demographics Income level, lifestyle and also
attitude towards education and work have an effect on the profit margin of the business
(Saleem, 2017).
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TASK 2- TRAINING PACKAGE
Slide 1
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Slide 2
11

Slide 3
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