Finance and Funding in the Travel and Tourism Sector: UBC Report

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UNIT 2 FINANCE AND FUNDING IN THE TRAVEL AND
TOURISM SECTOR {UBC}
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Table of Contents
Introduction......................................................................................................................................3
Task 1 (LO1, AC1.1, 1.2, 1.3).......................................................................................................5
LO1: Importance of volume, costs and profit................................................................................5
1.1 Explanation of importance of volume and costs..................................................................5
1.2 Pricing methods....................................................................................................................6
1.3 Factors influencing profit.....................................................................................................8
Task2 (LO2, AC2.1, 2.2)...............................................................................................................10
LO2: Use of Management accounting information.......................................................................10
2.1 Types of MAI (Management accounting information)........................................................10
2.2 Assessment of Management accounting information..........................................................11
Task 3 (LO3, AC3.1).....................................................................................................................13
LO3: Interpretation of Financial accounts...................................................................................13
3.1 Comparison of performance [Refer to Appendix 2]...........................................................13
Task 4 (LO4, AC4.1)...................................................................................................................14
LO4: Distribution and sources of funding...................................................................................14
4.1 Analysis of distribution and sources..................................................................................14
Conclusion.....................................................................................................................................14
Bibliography..................................................................................................................................15
Appendices....................................................................................................................................17
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Introduction
Travel and tourism sector has experienced recent growth as large number of people due to family
vacation or official trip or for adventure is seeking the help of tourism sector. In this study,
importance of cost, profits and volume has been explained. On the other hand, pricing methods
such as market led pricing strategy, cost pricing and cost plus pricing methods have been
discussed about in detail. The problem statement of the study is to provide an understanding of
different elements of a travel and tourism sector.
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Executive summary
The study has analysed the importance of Costs and volume in case of travel and tourism sector
because it helps in analysing the level of expenses that are associated with the business.
Moreover Break even analysis has also been done. In addition to this Pricing methods have been
seen to be various out of which one has been adopted by Hotelplan holding limited. factors
influencing profits have also been explained.
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Task 1 (LO1, AC1.1, 1.2, 1.3)
LO1: Importance of volume, costs and profit
1.1 Explanation of importance of volume and costs
Costs and volume are importance in case of travel and tourism sector because it helps in
analysing the level of expenses that are associated with the business. It has been seen that costs
are of different types such as fixed costs, variable, direct costs and others. A business like
Hotelplan holding limited incurs more or less all these types of costs which are directly affected
by the number of tourists served or customer’s needs catered to (Buiga et al. 2017). Therefore a
firm operating in a travel and tourism sector is bound to determine the level of volume of
operations so that an organization's achieves break-even level of profit. For example in case of
HotelPlan Holdings limited, it has been seen that the organisation incurs fixed costs, variable
costs that varies according to the number of customers being able to serve and other indirect
costs. The importance of costs, profit and volumes can be best understood with the help of break
even analysis undertaken as follows;
Break even analysis
Revenue
Variable
costs
Fixed
Costs
Volume
level
Total
costs Profit
100000 6 100000 5000 130000 -30000
120000 6 100000 6000 136000 -16000
140000 6 100000 7000 142000 -2000
145000 6 100000 7500 145000 0
150000 6 100000 8000 148000 2000
160000 6 100000 9000 154000 6000
Table 1: Break even analysis for HotelPlan Holdings
(Source: learner)
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Figure 1: Graph showing level of profits
(Source: learner)
It has been seen that Hotelplan Holdings has a fixed costs level of £100000 and variable costs
per volume is found out to be £6. On the other hand, minimum volume level of 5000 has been
chosen. Revenue of £100000 has been achieved at 5000 volume of operations undertaken by the
company. Profit has been determined with the help of deduction of total costs from that of total
profits. As per the opinion of Collier (2015), break even analysis helps in determining the level
of units or volume at which there would be no profit and no loss. This means that the firm would
be able to finance its fixed costs level and it would also be able to sustain for a long term basis.
Thus it can be said that in case of HotelPlan holding limited the break even volume level has
been determined to be 7500. This is because at this point no profits or loss has been made.
Moreover it can be said that the company would receive profits only when it would be able to
serve above the level of 7500. On the other hand economies of scale would be achieved at the
point when it would be able to reduce the variable costs of £6 on a per volume basis. In case of
diseconomies of scale it can be said that if the variable costs increases above £6, then it would be
said to follow a trend of diseconomies.
1.2 Pricing methods
Pricing methods have been seen to be various out of which one that might be adopted by
Hotelplan holding limited. These have been found out to be as follows;
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Costs led pricing: according to this pricing method, a fixed percent of income is added to the
costs in order to determine the sale price (Langvinienė and Daunoravičiūtė, 2015). In case of
Hotelplan holding limited, it has been seen that cost led pricing method is not adopted.
Cost plus pricing: In this method, it has been seen that unlike cost led pricing fixed percent of
costs is not added to to determine the sale price. This method is also not adopted by Hotelplan
Holding limited.
Contribution pricing method: in this case a basic sale price is determined assuming that each of
the customers contributes a similar amount of profits towards the firm’s services. It is not used
by Hotelplan holding limited.
Market led pricing: market led pricing method helps in determining the prices according to the
pricing strategies adopted by large number of competitors. It has been seen that Hotelplan
holding limited adopts this strategy of pricing so that it keeps it prices of servicers at par with its
competitors. For example its prices are £568 in winter season as large number of tourist does not
turn up during this season and £709 in the summer seasons (hotelplan.com, 2019). This is
because large number of tourists is expected in this season. [Refer to Appendix 1]
Absorption costing: absorption costing method of pricing is seen to involve inclusion of all
variable costs and fixed costs (Buiga et al. 2017). This method of pricing is not seen to be
accurate by large number of companies. Moreover in case of travel and tourism sector, the
pricing method leads to determination of low prices. This does not help in achieving high
profitability.
Marginal costing: marginal costing method of pricing helps in finding accurate price of products
or services offered. This is because it takes into account only extra costs that are required to offer
extra volume of products or services. However it involves limitations because it does not helps a
firm to price goods at a competitive level.
Return on investment: it is a backward determination of prices, because returns that are required
to be achieved are determined at first. Furthermore, determination of prices is done keeping in
mind time value of money.
Top down approach: As the name suggests, profit is determined at firsts and then fixed and
variable costs are added to it so that the final sale price is determined. On the other hand, it has
been seen that budget of the organisation and prices set by the competitor and value expected so
taken into consideration (Butler, 2016).
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1.3 Factors influencing profit
Profit: Profits are the amounts that are achieved if the revenues exceed costs (Dyson, 2010).
Reasons to make profit: an organisation aims to achieve profits because it helps it in meeting its
regular expenditures as well as increase the operations of the business.
Factors influencing profit:
Seasonal variations
Seasonal variations help in determination the level of profit because in a particular season the
number of tourists might not turn up. The demands and supply in travel and tourism sector is
determined to a large extent by seasonal factors. For example in case of Hotelplan holding during
summer season the demand increase and this increase the profit level. In winter season few
tourists arrive so profits is affected negatively (hotelplan.com, 2019).
Figure 2: Factors influencing profit
(Source: learner)
Political, Economical and Social aspects
Political condition of UK is found to be stable after Brexit hence this has affected the economic
growth of the country too as pound sterling has become strong against dollars. This has this
affected the travel and tourism sectors as people from large parts of the world are finding it
expensive to visit UK’s cities (Quaranta, Citro and Salvia, 2016). Social factors such as people
finding holidays and vacations impacting their health positively have started undertaking
increased number of tours to UK (Moro, Rita and Oliveira, 2018). Therefore profitability has
been impacted positively by social aspect and negatively by political as well as economical
factors.
Present trends
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SeasonalvariationsPolitical,EconomicalandSocialaspectsPresenttrendsBaddebts,Planningandstaff

Present trend shows that the number of tourist visiting UK has increased over the years. In 2018,
it has been observed that £27 billion has been spent by the tourist. In 2017 also a total number of
40 million tourists have been seen to visit UK. This improved the profit of Hotelplan holding in
2017 and hence revenue of £259.1 million (bloomberg.com, 2019).
Bad debts, Planning and staff
Other factors such as bad debt, planning and staff have been seen to affect profitability of the
firm to a large extent. For example if Hotelplan holding limited experiences large amount of bad
debts then it profitability would reduce. On the other hand proper planning of services and
strategies if is not used then it would not be able to make high amount of profitability (Mason,
2015). Moreover contribution of staffs is also required as if they perform effectively then it helps
firms to achieve the targeted profitability rate.
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Task2 (LO2, AC2.1, 2.2)
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LO2: Use of Management accounting information2.1 Types of MAI (Management accounting
information)
There are different kinds of MIS or Management
accounting information with the help of which
organisations are able to derive significant
information about a company. These include
budgets, analysis of variances, Forecasting, MIS
and financial statements. In case of Hotelplan
Holding limited, it has been seen that use of all
these accounting information system by the
management would be beneficial. These
Management accounting information have been
explained below;
Budgeting: Budgets is one of the most significant
type of management accounting information
because it helps in understanding the need to incur
or not to expend too much of funds. In the opinion
of Appelbaum et al. (2017), it has been seen that
accounting information that are collected from
various departments established within an
organization. With the use of this information, it
can be said that management is able to understand
the amount of allocated resources that each
department needs. It also helps in understanding the
need to eliminate expensive activities. In case of
Hotelplan holding limited, budgets would help in
making the managers more proactive to eliminate
the chances of increasing in expenditure.
Analysis of variances: Analysis of variances is
another type of Management accounting
information that helps in bringing out the
differences between actual and expected results.
Organisations have to compare between the actual
and expected results because it helps them in
understanding the level of control they have used to
reduce expenses and increase revenues. As per the
opinion of Vogel (2016), Hotels that are involved in
the travel and tourism sectors also have to incur a
lot of operating expenses on a daily basis. This
makes it important for them to undertake variance
analysis effectively
Forecasting:Forecasting as a management
accounting information tool helps in analysing the
past as well as future trends that are observed in the
business. According to the viewpoint of Dyson
(2010), it has been understood to be an effective
tool to take preventive measures so that profitability
remains unaffected in a negative manner. On the
other hand it also helps in reducing the level of
expenses if the expenses either on an overall basis
or on a departmental basis. Therefore it has been
seen that of Hotelplan Holding limited uses it then
it would be able to forecast the number of tourists
arriving in a particular season and the amounts of
profits as well as expenses it would be exposed to.
MIS: Management information system has large
number of computer based tools that helps manager
to undertake evaluation of various organisations
related information. It also helps in collecting and
analysing data for understanding the performance
of company. If the HotelPlan Holdings undertakes
process, store and analyse data related to day to
day activities.
Financial statements:
Financial statements on the other hand help in
providing detailed information of financial
nature. This in the opinion of Adams (2006)
offers a comprehensive understanding of the
organisational performance in terms of
profitability, solvency and liquidity. Therefore
use of it by Hotelplan Holding limited would
help it in obtaining information related to overall
year’s financial performance.
2.2 Assessment of Management accounting
information
It has been found out that management
accounting information has been an effective
decision making tool. This is because, it helps
analyzing trends over the years in the sectors in
which it is employed. Moreover it also helps in
understanding different limitation that exist or
are inherent in the businesses. The positive side
as well as limitations have been explained in
context of it being a decision making tool and its
use by the management of Hotelplan holding
limited below;
Trend analysis: Management accounting
information helps in analysing trends over a
period of time. On the other hand, this in turn
helps in making the firms be able to predict the
trends of expenses, revenues, profits and others.
Hotelplan managers would be able to predict the
trends based on market data obtained and
previous records possessed.
Forecasting: In case of forecasting, it has been
seen that application of management accounting
information would help the managers in making
decisions related to the expansion or normal
operations of the business (Dyson, 2010).
Moreover this would be done by forecasting
about whether the costs of operations would rise,
or the number of customers would be low and
other matters. As decision making tool
management accounting information has been
seen to be useful because it helps in forecasting
about the concerned areas of business. In case of
Hotelplan, it has been seen that the costs of
operations and profitability could be forecasted
along with the number of tourists coming in a
particular season.
Raising of capital and Investment
analysis: Hotelplan would also be
benefitted as management accounting
information helps in understanding the
amount of capital to be raised in a
particular year. On the other hand it
would also help the managers of the
hotel to choose between different
activities. This is because with the help
of this viability of the investment
would be known (Butler, 2016).
Decision regarding new products and
services: Decision regarding starting
out with a new products or expansion
of services is also judged with the help
of management accounting
information. Likewise Hotelplan
would also be benefitted by the use of
it as it would help in the managers to
make decision regarding expansion of
the hotels number of subsidiaries or
services.
Issues that are related to its use as a
decision making tool: However there
are certain issues related to its use.
These have been found to be inability
to motivate employees and managers
to work efficiently. In addition to this
it also does not take into account
uncertain events that may affect
businesses in future.
It is found to be against the criteria
set: it has been found out that at some
point of time management accounting
information proves to be against the set
criteria that are profitability, solvency
and liquidity (Appelbaum et al. 2017).
This is because managers may only
focus on improving areas related to
cost of operations or investments. Thus
it does not help in meeting financial
criteria directly.

Task 3 (LO3, AC3.1)
LO3: Interpretation of Financial accounts
3.1 Comparison of performance [Refer to Appendix 2]
Figure 3: Ratios
(Source: learner)
Audley Travel group limited’s financial performance has been analysed with the help of different
ratios. These ratios have been found out to be Current ratios, liquid ratio, creditors and debtors’
payment period as well as others. In the opinion of Robinson et al. (2015), it has been found out
that the ratios can be determined with the help of financial statements like income statement and
balance sheet. Therefore with the help of Audley travel group’s data collected from income
statement and balance sheet, ratios for 2016 and 2017 have been calculated. This has helped in
understanding the level of performance of the company. It has been seen that liquidity,
profitability, solvency and efficiency ratios have been determined for the company. It has
showed that the firm has performed well on an overall basis. In terms of liquidity it shows a good
performance. This is because, firm is able to achieve 1.29 times of current ratio. According to the
opinion of Vogel (2016), this level of current ratio helps in understanding that the firm has
enough liquid assets to meet its working capital requirements. Moreover in comparison to its
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previous year it has improved marginally. On the other hand, it has been seen that acid test ratio
has been determined to similar to that of current ratio. This is because there is no inventory.
Furthermore the improvement shows that the firm is able to meet its immediate liabilities
effectively. On the other hand, return on capital employed has reduced over the previous year
figure of 9.87% to 8.35%. This means that the Audley Travel has not been able to generate high
amount of profitability from the shareholder’s funds. In addition to this return on net assets has
also declined considerably in 2017 to 106%. Both debtors and creditors collection period have
reduced in 2017. This means that debtors and creditors management has improved in the recent
year. This also shows that Audley Travel group’s efficiency has increased over the years. In case
of Administration cost to sales, it has been fiend out that administration costs has increased over
the years hence this shows that the firm is not able to control its expense. As a result net profit
has also declined and this net profit per cent has also decreased marginally to 8.50%. Gross profit
has however remained the same. Since there are no inventories, therefore stock turnover ratio has
been found to be nil.
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