Financial Management in Travel & Tourism Sector (BT2023)

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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
1.1 Describe the importance of volume and cost in financial management in travel and tourism........4
1.2 Explain the pricing method in the travel and tourism sector...........................................................6
1.3 Factors affecting the profits of travel and tourism business............................................................8
Task 2.....................................................................................................................................................9
2.1 explain different types of management accounting information that could be used in travel and
tourism businesses using The Fulham Shore plc as your case study...............................................9
2.2 assess the use of management accounting information as a decision-making tool for The Fulham
Shore plc..........................................................................................................................................9
Task 3...................................................................................................................................................16
3.1 interpret financial accounts of The Fulham Shore plc for the year ended 25th March 2018
showing at least two years performance (for example comparing 2018 to 2017).........................16
Task 4...................................................................................................................................................19
4.1 analyze sources and distribution of funding for the development of capital projects associated
with tourism...................................................................................................................................19
Conclusion...........................................................................................................................................21
References............................................................................................................................................22
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Introduction
This assignment is prepared so that the knowledge regarding the management accounting in the
travel and the tourism sector can be gained. The report mainly focuses on the cost, profit, and
volume which help in taking the effective decisions in the travel and tourism sector. The report
will also explain the different sources of funding which helps in the development of the capital
projects. The report is divided into four segments, in which the first section focuses on the
importance of the cost, volume and profit in the company Carnival Corporation plc. In the
second report, the presentation will be prepared which will state the use of the management
accounting information and its type in The Fulham Shore plc. In the third segment of the report,
the ratio will be evaluated by The Fulham Shore plc to evaluate the financial performance of the
company. In the fourth segment, the leaflet will be made which is stating the different capital
projects requires funding from the different sources.
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Task 1
1.1 Describe the importance of volume and cost in financial management in travel and
tourism.
Carnival Corporation plc is currently the world largest company in travel and tourism sector. Its
aim is to provide its services to millions of people all over the globe. If Carnival Corporation plc
has to sustain its dominance for a long period of time then it has kept its cost in control.
Cost is the amount which is incurred by the Carnival Corporation plc during the business activity
or operations. Cost is a major factor which affects the performance of the business (Kotas, 2014).
Volume is generally the calculation of the finance of the business. Volume calculates the amount
of expense in monetary terms.
Importance of cost in Travel and tourism sector:
 Sound Decision making: In the capital, budgeting cost is being used for decision making to get
the maximum return on the amount invested.
 Increase the performance of management: Cost analysis helps the management to compare
between different projects and select only those project which is more financially viable for the
company (Eldenburg, et. al., 2016).
 Helps in creating the financial structure: Financial structure of the Carnival Corporation plc is
made up and designed of different cost.
Types of costs are:
Direct Cost: Direct cost is the amount that can fully be attributed to the manufacturing of
specific services or goods. Variable cost can be considered as a direct cost if it is related to the
manufacturing. Eggs of direct cost in the tourism sector are flight cost, accommodation cost,
monument entrance ticket cost etc.
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Indirect Cost: This type of cost is not directly related to production. Indirect cost may be fixed
or variable. Eggs of the indirect cost in the tourism sector are administration cost, security cost,
Depreciation on vehicles etc.
Fixed Cost: -It is the cost that does not change with the change in the level of production. It
remains constant for a long period of time. If an organization stops the production process, it also
fixed cost will be incurred. Eggs of the fixed cost in the tourism sector are Cost of vehicles, Cost
of land and building etc.
Variable cost: It is incurred according to the level of output. Variable cost decrease or increase
depends on the level of output. Variable cost increases with the increase in production level and
decreases with the decrease in production level (Eldenburg, et. al., 2016).
For the organization like Carnival Corporation plc volume analysis is very essential
Break Even analysis: - It is financial tools which help the Carnival Corporation plc to know at
what point company will reach profits. It is important for the company to know what will be
there breakeven point so that they can plan their sales according to it.
Economies of Scale: - when a large number of units or services are produced on big scales, with
the low input cost then the economy of scales are achieved. Carnival Corporation plc can save
the cost by applying the economy of Scale.
Diseconomies of scales: -It occurs when the organization grows so big that it's the cost per unit
increases. The point at which economies of scales do not work for the Carnival Corporation plc
is known as diseconomies of scales. Diseconomies of scales can happen for many reasons but the
main reason is that organization not able to manage the large workforce.
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1.2 Explain the pricing method in the travel and tourism sector
Types of pricing method used in the travel tourism sector are:
Cost based pricing Method: In this method, a fixed amount or fixed percentage is added to the
total cost to calculate the selling prices. It is the easiest way to determine the selling price.
Market-based pricing: In this pricing strategy selling price of the product is determined
according to the situation prevailing in the market. If the price of a similar product is high in the
market then the company will increase the price of its product and if the price is low then the
company will decrease the price of its product.
Contribution: Contribution is defined as revenue minus variable expenses. Contribution shows
the incremental gains created for each unit/products sold and is calculated as the selling price
less variable cost. It shows how an individual unit/product contributes to the gross profit of the
organization. It shows the profitability capacity of an individual unit/product offered by the
organization. Formula: Contribution margin = (Net product Revenue-Product Variable Costs).
Absorption Margin: - In absorption method, fixed production overheads are included in the cost
of units. Inventory is calculated at the absorption costing and fixed production overheads are
charged in profit and loss accounts (Holzhacker, et. al., 2015). Absorption costing is one of the
managerial accounting methods. Absorption costing includes all the cost related to the
production of the unit/product.
Marginal Costing: -It is a type of costing in which marginal cost i.e. variable cost is included in
the calculating the cost of units. In this costing method, fixed cost for the period is totally written
off. Marginal costing shows the additional cost which is incurred to produce the extra unit.
Formula of marginal costing: Marginal cost= Direct Labour + Direct Material + Variable
Overheads + Direct expenses
Characteristics of Marginal Costing:
Calculation of price: The price is calculated on the bases of marginal contribution and marginal
cost.
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Profitability: The calculation of the product profitability and departmental profitability is totally
based on marginal costing.
Identifying the variable and fixed cost: The cost is separated on the bases of variable cost and
fixed cost.
Valuation of the inventory: While valuing the work in progress and finished goods only
variable price should be considered. Variable selling overheads are not included in the valuation
of stock (Vitez, 2018).
Top Estimation: This method is used by the top level to estimate the overall cost of the project.
This estimation is based on the previous project's information. In simple words, the cost of the
current project is based on the cost of the previous project.
Advantages: It is useful for those projects in which an early estimation of the overall cost is
required. It is useful when very little information is available about the project and not much is
known about the project (Holzhacker, et. al., 2015).
Disadvantages: There are many disadvantages to this approach. The main one is lack of
accuracy due to lack of details available with the company.
Return on Investment: ROI calculates the efficiency of a project or links the efficiency and
effectiveness of the different projects. ROI directly calculates the return on the investment made
the company on a project. ROI is calculated by dividing the cost of the project with the return on
investment. Results are shown in ratio or percentage.
Formula: (Gain from investment – Cost of investment)/ Cost of investment
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1.3 Factors affecting the profits of travel and tourism business
There the various type of factors which affects the profits of travel and tourism sectors.
 Peak Seasons/ off Seasons: Profits of the travel and tourism business totally depends on the
seasons. Festive seasons are considered as the peak season. During the festive seasons, the
demand for travel and tourism are more (Van der Sterren, 2017).
Normal working days are considered as the offseason and sales are very low at that time.
Carnival Corporation plc can implement the various policies in peak season to attract the
customer.
 Natural disaster: Tourist avoids visiting such places because there is a lot of risks is involved.
 Foreign Exchange: Different countries have different currencies. The difference in the rate of
exchange affects the profits of the Company. Carnival Corporation plc should plan its financial
model according to different Currency rates.
 Economic Environment: During the time of recession people are more careful in the way their
money should be spent. Saving the money and full filling their basic needs will be their Maine
motive. People will not prefer to travel during the time of recession. Their main motive will be to
save their money (Vitez, 2018).
 Current Trend: Trends are set by the tourism survey and the travel media and are followed by
the tourism market professional. Trends can be of the different type of destination like beaches,
historical monuments, European cities etc.
 Social Environment: Travel and tourism will only grow in that countries where the social
environment is friendly with tourist. Local peoples should show their cooperation to tourist and
be familiar with them.
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Task 2
2.1 explain different types of management accounting information that could be used in
travel and tourism businesses using The Fulham Shore plc as your case study
2.2 assess the use of management accounting information as a decision-making tool for The
Fulham Shore plc
This project contains the information about the management accounting and the use of
decision-making tools along with its merits. This presentation will help the Fulham Shore Plc
in providing training to its employees.
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This tool will help the company to decrease its cost and accomplish its goals and targets more
effectively and efficiently. This tool will give the information to management to make a
better decision.
Training package will improve the performance of the company. This package will help the
company to bring its all employee at the same skill level. Training package will help the
employees of the company to improve its performance and personal communications.
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Management of the company requires information regarding the cost of the training
packages. The basic purpose of the training package is to determine the present skill level of
the employees and compare it with the desired skill level.
The training package is implemented to achieve the objectives of the company. The objective
of the training package has been mentioned in this slide. Objectives are the goals of the
company which company wants to achieve in the near future.
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