Finance and Funding in Travel and Tourism: A Comprehensive Analysis

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Finance and funding in the travel and
tourism sector
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Table of Contents
Introduction....................................................................................................................................3
Task 1..............................................................................................................................................4
Question 1.1 Explain the importance of costs and volume in financial management of travel
and tourism business.....................................................................................................................4
Question 1.2 Analyze pricing methods used in the travel and tourism sector.........................5
Question 1.3 Analyze the factors influencing profits for travel and tourism business............7
Task 2..............................................................................................................................................9
Question 2.1 Explain different types of management accounting information that could be
used in the travel and tourism business.......................................................................................9
Question 2.2 Assess the use of management accounting information as a decision-making
tool.................................................................................................................................................11
Task 3............................................................................................................................................15
Question 3.1 Interpret travel and tourism financial accounts.................................................15
Task 4............................................................................................................................................22
Question: 4.1 Analyze sources and distribution of funding for the development of capital
projects associated with tourism................................................................................................22
Conclusion....................................................................................................................................24
References.....................................................................................................................................25
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Introduction
Finance and funding are used in any enterprise for the development of its ongoing capital
projects. Funds are required to satisfy the future financial needs and obligations existing in the
enterprise. The following report is prepared to provide a basic understanding of the relevance of
finance and funding in CARNIVAL CORPORATION PLC. The following report is divided into
four tasks into which task 1 depicts about the importance of cost and volume in financial
management of enterprises in tourism sectors, analyses about pricing method used to determine
the tour package prices and discussion about profit influential factors in tourism business is
provided. In task 2 a training package is presented to provide an understanding about the overall
concept of managerial accounting information and explanation about how these systems used as
a decision-making tool by the management of FULHAM, SHORE PLC. In task 3 financial
accounts of FULHAM SHORE PLC are interpreted and in task 4 to provide an understanding
about the different sources and application of funding for development of capital projects in
tourism sector a leaflet is prepared.
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Task 1
Introduction
The following report provides details about the importance of cost volume and profit for
management in decision making in travel and tourism. The below report is provided such
important concept in the scenario of CARNIVAL CORPORATION PLC enterprise scenario.
Question 1.1 Explain the importance of costs and volume in financial management of travel
and tourism business.
Cost and volume in an enterprise depict the various influential factors in an enterprise. In
financial management cost and volume, analysis plays a major role in determining the financial
aspects of an enterprise. Cost volume analysis is termed as CVP analysis in financial
management. In formulating predictions about the dynamic management to evaluate and
analyses the implications of cost and volume analysis on short term business decisions.
Assumptions regarding fixed costs, variable cost, selling price, sales volume, and profit planning
scenarios are formulated while doing cost volume analysis on a continuous basis. Such analysis
in an enterprise initiates continuous improvement by depicting and forecasting future activities
after the proper decision-making process formulated by the management. Identification of
various manufacturing and fixed overhead is always made while performing CVP analysis.
Many enterprises use CVP analysis as a financial metric which provides the means on to which
financial and investing decisions in the enterprise are formulated which improve the overall
operational and financial performance of the enterprise.
In CARNIVAL CORPORATION PLC cost volume and profit analysis are used as an analytical
and financial metric which depicts the relationship between sales volume and cost of an
enterprise which has its implications on profits of the enterprise. This analytical tool in this
enterprise is treated as a profit planning process which depicts the forecasted future operations in
an enterprise on to which financial and operating budgets are formulated. In this enterprise
extension process formulated with the help of cost and volume analysis serves as an integral part
of marginal costing for analyzing future profits. Overview of the overall planning process is
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provided by CVP analysis depicts the involvement of budgets and forecasting budgets and
provides the appropriateness and reasonableness regarding budgeting and planning process.
Analysis of overall cost involves the proper analysis of direct cost, indirect costs, variable and
fixed costs, allocation and apportionment of resources and overheads and their efficient and
effective utilization which leads to improvement of overall performance of the enterprise. Such
allocation an apportionment of resources and overheads among different departments involves
the executive understanding to determine and formulate future decisions regarding such
apportionment and allocation to improve the performance of the enterprise. CVP analysis in
CARNIVAL CORPORATION & PLC results in the determination of breakeven point both in
terms of profit and sales.
Analyses of sales volume affect the overall economies and diseconomies of scale in terms of the
increase in sales volume and a decrease in sales volume. Sales volume is affected by the cost of
the project which in turn affects the profitability position of the enterprise. In CARNIVAL
CORPORATION & PLC analysis of sales volume is used in profit planning activities which
anticipate the future operations regarding the future outcomes associated with the projects .in
order to evaluate the financial performance of the enterprise it can be said that cost volume
analysis is a crucial factor which determines the effects of changes of cost and sales volume on
profit and helps in the decision-making process regarding decision formulation by management
of the enterprise.
Question 1.2 Analyze pricing methods used in the travel and tourism sector.
Pricing methods are the strategies which are formulated by the management after considering the
prevailing competition in the market, target audience, expansion strategies, and future risk
assessment. Price methods are which provides details about the prevailing price scenarios in the
market like price economy, price skimming, price penetration and premium prices of some
special products. These prices help to determine the actual money that customers needed to pay
to suppliers to determine the products. Pricing strategies in tourism sector affected by the
financial performance of the business due to decisions formulated on the basis of such strategies.
Pricing strategies should be determined after considering the overall influential market factors
which are likely to influence the prices of tour packages.
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Following are the pricing methods used in the travel and tourism sector to base on which
price of the tour packages are determined:
 Cost based pricing strategy: cost-based pricing method determines pricing strategy after
considering the prevailing cost of the product or service involved in producing such a product. In
such strategies, a certain amount of margin is added to the cost to ascertain the selling price of
the product and service. In this method two pricing methods are involved and which are cost-plus
pricing and markup pricing. In CARNIVAL CORPORATION PLC cost-based pricing strategy is
used to ascertain the selling price of tour packages after adding a certain amount of markup in
the cost of the tour package.
 Demand-based pricing strategy: demand-based pricing method determines pricing strategies
after considering the prevailing demand scenarios in the market. In such method prices
determined are based on certain factors which involve prevailing completion, market forces,
competitive prices, expansion strategies, future outcomes, and price penetration and price
skimming scenarios. In CARNIVAL CORPORATION PLC demand-based pricing strategies can
be used to determine the tour package prices and such a method is also known as competition
based strategy.
 Market-oriented pricing strategy: market-based pricing method determines pricing strategies
after considering the prices of similar products or services in the market. In this method
determination of prices is responsible for certain factors which include perceived value pricing,
differential pricing, and auction-based pricing. In CARNIVAL CORPORATION &PLC market-
based pricing strategies can be used in determining the prices of tour packages after considering
the prevailing prices of similar tour packages.
 Other pricing methods: other pricing methods involve prices building strategies, break-even
point pricing strategies, prestige pricing, and affordability pricing strategies. Such a strategy
helps an enterprise to determine the prices of products and services after considering the overall
influential market factors. CARNIVAL CORPORATION PLC can use these strategies to
determine the price of its tour packages after considering the overall influential factors prevailing
in the market.
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Question 1.3 Analyze the factors influencing profits for travel and tourism business.
Profits are a sole term which contributes to the overall profit maximization going on in the
business. Profits are the total financial and monetary benefit derived by deducting the overall
expenses occurred from the overall revenue generated from a particular project. Profits in an
enterprise fluctuate due to changes in selling prices, increasing competition and prevailing
market scenarios affecting the business of the enterprise. To obtain the greatest profits in an
enterprise prize maximization and optimization strategies are used. Profits in an enterprise are
necessary and crucial to avoid potential competitors, achieving leadership, reducing government
intervention practices and maintain goodwill by mitigating losses and avoiding risk.
Following are the influential factors that affect the profits of the business in travel and
tourism:
 Seasonal and environmental factors: The most probable factor which affects the profits of the
business in the tourism sector is the fluctuating seasonal and environmental behavior prevailing
in the market. Environmental factors affect the tourist attraction points, heritage sites, broadways
and development of capital projects in the travel and tourism sector. Various types of issues
catered by the seasonal and environmental fluctuations which impact the overall profitability
position of the business in travel and tourism business.
 Political environment: Changes in the recent political holding power scenarios affects the
overall leadership, political, local and global trend of the economy as a whole. As the political
environment overall affects social and economic environment prevailing in the market and such
affects ultimately results in legal constraints which are responsible for influencing profits in the
travel and tourism business.
 Planning and current trends: the overall business of an enterprise is running due to proper
plans formulated by the management on the basis of goals which fluctuates because of changes
in currents trends. Such fluctuations arise due to changes in interest rates, affordability scenarios,
and economic growth. Profits of business in travel and tourism affected due to fluctuations in
planning scenarios based on the fluctuating trends prevailing in our economy.
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 Economic environment: Economic environment in our nation fluctuates on a daily basis due to
fluctuations in currency and exchange rates and fluctuation in the stock prices. Economic
environment affects the overall profitability position of the enterprise due to a shortage of labor,
consistent falling prices of shares and overall affect the monetary policy of a nation. Profits in
business in the tourism sector are crucially affected by the fluctuations occurring in the overall
economic environment and fluctuation in the currency rates is the most responsible factor of
economic environment for influencing business profits in travel and tourism.
 Travel trends: travel trends are observed on a yearly basis. These trends determine the
preference fluctuation of the tourists regarding selecting a destination. Travel trends in business
in the tourism sector are observed by the tourism marketing professionals in tourism media with
the help of appropriate tourism survey by using professional tools. Profits in the business of
travel and tourism sector are affected by the rapid fluctuation in the travel trends most probably
on the part of tourists.
Conclusion
Above report provides overall details about the concept of cost volume and profit in financial
management of CARNIVAL CORPORATION PLC, pricing strategies adopted by the enterprise
to determine the prices of tour package and discussion about the factors which are responsible
for influencing profits of the business in travel and tourism.
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Task 2
Question 2.1 Explain different types of management accounting information that could be
used in the travel and tourism business.
This following presentation is prepared with a view to providing an understanding of the overall
concept of management accounting information and how this system is used as a decision-
making tool by the management of FULHAM SHORE PLC.
Following report consists of Introduction of the concept of management accounting information ,
Uses of management accounting information, types of management accounting information,
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budgets, variance analysis, balance sheet of FULHAM SHORE PLC, income statement of
FULHAM SHORE PLC, cash flow statement of FULHAM SHORE PLC and types of decision
making tool used in FULHAM SHORE PLC.
Management of FULHAM SHORE PLC uses Management accounting information system for
formulating financing and investing decisions and above training package is used to ascertain the
importance of this tool in the decision making process of management. Following are the
different types of management accounting tools used in this enterprise for decision formulation.
This management accounting information system is used by management in planning,
forecasting, budgeting and designing, Effective utilization of enterprise resources, Formulation
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of reports to ascertain the financial position of the enterprise and Comparative basis onto which
base decisions are formulated.
Question 2.2 Assess the use of management accounting information as a decision-making
tool.
Management accounting information has as explained above has four types which involve
financial statement, analysis of variance observed by deducting budgeted results from actual
results, formulation of budget reports based on the variance analysis and job cost reports
prepared by management for allocation of different tasks to the team in the enterprise.
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FULHAM SHORE PLC formulates three types of budgets which involve operating budgets,
capital expenditure budget, and operating budget. Such budgets are formulated to anticipate the
future operations onto which base conclusions about future outcomes are derived.
Variance analysis is the basis which provides details about the actual deviation resulted from the
difference between the budgeted outcomes and actual outcomes. For controlling, monitoring and
decision making variance analysis are used by management as a decision-making tool.
The balance sheet of FULHAM SHORE PLC depicts about the existing assets and liabilities in
2018. From the above picture, it is concluded that an increasing trend in current assets and
decreasing trend in current liabilities is observed in 2018 as compared to 2017. A balance sheet
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