Finance and funding are very important in order to run their business operations in an effective manner. This helps them in attaining sustainability, according to the current market scenario, travel and tourism is a growing sector. Most of the companies are now establishing themselves so as to earn maximum benefits. A company that is taken in this assignment is Akaglo Tour Company that is a travel agency that provides holiday trips to its clients. The report will throw light on the importance of costs and volumes in the financial management of the travel and tourism business (Evans, Stonehouse and Campbell, 2012). Analysation of pricing methods used in the travel and tourism sector is included in this. Different types of management accounting information that is used in business in travel and tourism. Interpretation of financial account is being done in this report and lastly, sources and distribution of funding for development of capital projects that are related to tourism are mentioned in this assignment.
1.1 Importance of cost and volume in financial management of travel and tourism
Akaglo Tour Company is one of the leading companies in United Kingdom that provides travel facilities to customers who visit to their country. The operation and management department of any business tries to cut off the prices so that company can get maximum benefits and profits. Further in order to do so organisation uses various kinds of tools and techniques so as to control the cost this will enable them in increasing their profits and market shares as well. Therefore, cost management is very essential for a company. There are different kinds of costs exist are available in the market area and some of them are stated below:
Variable cost: This is consider as the price that production department estimate while manufacturing a product or a commodity. It can vary from department to department and fluctuates as per the requirements of production unit according to the substance required. This includes some of the elements like labour cost, direct expenses and the price that is needed for producing a good (Gibson, Kaplanidou and Kang, 2012).
Fixed cost: Under this, cost remains the same at every level, any kind of changes and modification in the process doesn't affect the fixed cost price. If the company faces any loses than also they have to bear the damage and their process of manufacturing and giving services goes on. Some of the example related to fixed cost are interests, loan, debentures, rent etc.,
Cost Volume Profit (C-V-P) concept: This concept helps the company in evaluating the selling price, cost, cost of the product, desired sales in a speculated time frame. The entire analysis of cost is based on nature and structure of the business operations.
this is the concept is used to evaluate the selling price, cost, desired sales units and price of products and services. Evaluation of cost remain based upon structure and nature of business. Contribution is considered base of this concept. The concept is linked with defining the relationship among the contributions which are implemented through fixes cost. There is always a strong point analysed which is profitable for firms and they will produce maximum level of outputs from their business activities (Henderson, 2010). The effectiveness of Customer Volume Point is attained with the help of positive outcomes so that higher returns and profits can be gained by firms. The concept is having some assumptions such as the total fixed cost of returns, Variable per cost, sale price each unit, overall cost of products sold and the total volume of the commodities sold.
Break even analysis is a technique that is used by the department of production management and accountants in order to evaluate the estimated the amount of sales company does in a specific time period this will provide them with the adequate results regarding their profit growth. This can be calculated through following ways that are stated below:
Break even point in (£): In order to evaluate the break even point in sales value then contribution of margin plays a crucial role. As it helps the company in evaluating right figure of sales with the help of fixed cost. The formula is stated below:
Break even point in
Break even point in (£) = (Contribution / Profit volume ratio or contribution margin)*100
Break even sales in units: This assist the organisation in making out how much units are necessary for producing or generating income and revenues. It can be evaluated using the formula that is stated below:
BEP (units) = Fixed cost / contribution per unit
Therefore, managers of ATC are are using cost volume and profit concept for examine the price of packages, product and volume of the time that will be taken for the entire process.
1.2 Analyse pricing methods used in the travel and tourism sector
Fixing price for a trip is not the only task, evaluating its cost regarding the products and services is also important. Henceforth, company is using various techniques for evaluating the cost of commodity in different forms that are found in the industry of travel and tourism. This includes certain elements like accommodation, transportation, tour operators, travel agents, tour packages and many more. Henceforth, pricing method is assisting them in analysing the cost that will be required for operations and its management along with its price control.
Price skimming: This technique of proing is generally used by a company in order to improve the sale graph of its fresh products and services. Price skimming is vet essential during initial stages when the price of commodity is respectively high. This not only enables company in reducing their prices but also attract more and more customers towards them so that they can avail the services and products provided by organisation.
Psychology pricing: Entire process is done after evaluating and analysing the nature and behaviour of the customers. This helps the company in setting and managing the price of the products or services that are given by them (Heung, Kucukusta and Song, 2011). Other than this, it is majorly depends upon the increasing demands and need of people towards travel and tourism. Hence, it can be said that customer's choices and preference is given important under this technique of pricing strategies.
Bundle pricing: This factor is also termed as limited or the boundary line pricing strategy. The small and the medium size organizations are focusing on manufacturing products at low prices in order to satisfy needs and wants of customers. There are different services involved which are offered to clients according to their requirements. This is also known as Inseparable prices according to their designed strategy. This is the complex situation in analysing the prices of those products which are Immovable.
Mostly all the travel and tourism firms are preventing to adopt this business strategy related to cost factor and for determining the final price of goods As the goods which are sole in bulk amount develops an expensive image of the offered products and services.
Seasonal pricing: This kind of pricing technique is very beneficial and help the manger of the company in setting price as per the weather and seasonal conditions. For example: during summer time most of the traveller prefer to visit any cold places. Therefore, company fix the prices accordingly so that maximum number of customers can avail them in order to enjoy the benefits.
Markup costing: In this price of the products and services are set which will be applicable to customers. While determining the cost of the products this technique is used and for this all the additional charges are taken into consideration like service charges, maintenance charges and tax rates.
Pricing for market penetration: In order to determine the price and analysing the position of the substitute products and services in the market this kind of pricing strategy is used. It will aid them in having an idea about the strategies that other organisation has implemented in their commodities (Morrison, 2013). This is one of the effective tool for sustaining a better position at market area.
Affordable or social welfare pricing: This is considered as the technique in which, it assist the company in setting the price of the commodities so that normal customers can also but their products. Thus, it helps them in making the price of the goods affordable.
1.3 Analyse factors influencing profit for travel and tourism businesses
In the current market scenario, travel and tourism is a growing in a rapid speed. They contribute some of its revenue in enhancing the economy of the nation which country further use for developing infrastructure and new things. Most of the companies are preferring to establish their business in this sector. There are various kinds of factors that are stated below that plays some or the other role in providing benefits to the business of travel and tourism.
Political environment: Various countries have their own political system which may vary from nation to nation. They regulate some rules and regulations which are in order to improve and control the management of travel and tourism. Therefore, they formulate such rules which provides maximum benefits thus, help the nation in increasing their revenues and economy. Henceforth, it is necessary that a better communication is maintained with the regulatory bodies.
Events: This is considered so as one of the important element so as to increase the graph of sales in travel and tourism and products related to this sector. For this different campaigns are organised by managers which helps them in promoting all the activities in context with travel. Through this process, they tries to grab the attention of maximum number of people this will increase the sales and enhancing their profitability. This assist most of the companies in attracting and more and more tourists and to make it possible big companies pays a huge amount of money and it affects can be seen in the pricing the products and services.
Seasons: In the present scenario travellers are planning by considering the climatic condition of a place. This is providing travel companies with opportunities of increasing their sales and profitability. Summer and winter is the peak time when most of the traveller visit such places as per their choices and preferences. Therefore for this, it is important that ATC makes appropriate strategies which can enable them in attracting more and more customers.
Current Trend: Company is optimising all the resources like customer penetration, market trends which is helping them in pulling attention of maximum number of people. Thus, it is important that they work according to the choices and preferences of travellers. Along with this, they must also go through the current trends that are present in the market area. customer presentation, market trend, culture are the part of trends which attracts large number of visitors and tourist (Murphy, 2013). This is one of the essential aspect in terms of evaluate the price and making the strategies as per the market trends and culture.
Currency rates: This is considered as on of the important element that bothers every individual. As it differs from country to country according to the economic condition of the nation. People face problem regarding the currencies they are using along with this change in tax also creates a problem for travellers so it is important that they analyse all the factors that are necessary to be looked out for.
2.1 Different types of management accounting information used in travel and tourism businesses
An appropriate accounting information always provides a better information for making capital projects and plans so that company can grow in an effective manner. Most of the companies have internal management accounting system that is optimised for having a proper management and control. Therefore, content that are achieved from this are known as accounting information. Along with this the information that is gained from this helps the travel organisation in making appropriate plans and strategies. Company is using decision making tool for designing their entire trip in an effective tool and some of them are given below:
Trend line analysis: The information that is gathered form this assist the organisation in having an overview about how much growth and development company has gained in a particular time frame. Henceforth, it is considered as one of the essential element for analysing the trend line of a company.
Forecasting information: This enables company in analysing the sales and income results so that they can forecast the information that are related to company's profitability. Along with this, it helps the organisation in evaluating the nature and perception of change. For getting an effective results most of the travel firms go through the information that are published this aid them in evaluating the future trends that may arise in context with visitors and tourists.
Variance analysis: If a company wants to evaluate the actual and standard results than variance analysis fits best for them (Nielsen and Spenceley, 2011). It provides them with an idea about what will be the future cost projection as compared to the actual one.
Financial management information: This includes, cash flow, income statement and financial process that will give an overview about the financial position of the respective company.
2.2 Use of investment appraisal management accounting information as a decision-making tool
Investment appraisal are the different techniques and methods through which company can create different techniques and procedures. Hence as a result they can easily maintain unique positioning in the market as well in the firm. Through this they can evaluate the financial capability of the firm and firm can easily survive in the market. Through this the organization can easily maintain good image in market. Types of investment appraisal techniques used buy their company are:
Net present value: It is the technique through which company determines the present value of the investment. They evaluate cost of capital investment and thus they can easily determine the techniques. Positive net present value is positive as it is effective and efficient method. So hence firm utilize this method so that they can earn more revenues. It is calculated through different mathematical formula and other accounting data (Papatheodorou, Rosselló, and Xiao, 2011). There is a discounting factor through which present value of cash flows can be easily calculated. It is the most effective and useful method of determining the present value of cash flows.
Accounting rate of return: This method is used so that firm can easily determine the credibility and financial capacity of the organization. In this projects which give high returns as compared to the cost of investment are selected. Hence as a result they can easily be calculated.
Pay back period: In this method company can easily determine the recovery period and timer through investment can be received by the company. The period which has minimum recovery period can be accepted by the organization. Thus this is also the effective and useful method which is used by the organization.
Internal rate of return: It is the effective and efficient method used by the organization. IN this costs of investment is evaluated and thus they can easily maintain unique positioning in market. Discounted rate of return is used so that firm can determine the value which is calculated as zero (Pike, 2012). Through this efficiency of project can be evaluated by the firm. Firm can select hose projects whose value is higher than IRR value.
3.1 Interpret travel and tourism financial accounts
Income statement of TUI group for the year ended 30th September 2017
|Total Operating Expenses||-16535500|
|Selling General and Administrative||1999500|
|Cost of Revenue||17807000|
|Operating Income or Loss||728000|
|Total Other Income/Expenses Net|
|Income from Continuing Operations||351700|
|Income Tax Expense||728000|
|Income Before Tax||168800|
|Earnings Before Interest and Taxes||594000|
|Net Income From Continuing Ops||910900|
|Effect Of Accounting Changes||-|
|Preferred Stock And Other Adjustments||644800|
|Net Income Applicable To Common Shares||-|
Financial position statement of TUI Company for the year ended 30th September 2017
|Current Assets||Amount (£)|
|Cash And Cash Equivalents||2516100|
|Other Current Assets||843200|
|Short Term Investments||-|
|Total Current Assets||4317900|
|Deferred Long Term Asset Charges||3828500|
|Long Term Investments||-|
|Property Plant and Equipment||323700|
|Short/Current Long Term Debt||2653300|
|Other Current Liabilities||1933100|
|Total Current Liabilities||6534700|
|Deferred Long Term Liability Charges||630900|
|Long Term Debt||2355900|
|Misc. Stocks Options Warrants||-|
|Other Stockholder Equity||-|
|Redeemable Preferred Stock||-1562500|
|Total Stockholder Equity||3000600|
|Net Tangible Assets||-497900|
|Quick ratio||Liquid assets / current liabilities – bank overdraft||2516100 / 6534700 = 0.39|
|Current ratio||Current assets / Current liabilities||4317900 / 6534700 = 0.66|
|Gross profit ratio||(Gross profit / cost of goods sold)*100||1999500 / 1653500 = 12.09%|
|Net Profit margin||(Net profit / total revenue)*100||644800 / 18535000 = 3.47%|
|Debt ratio||Total liabilities / total assets||10651800 / 14185500 = 0.75 times|
|Debt equity ratio||Debt / equity||630900 / 2939700 = .22 times|
4.1 Sources and distribution of funding for the development of capital projects associated with tourism
In tourism sector various kind of sources are available in the market area that fulfil the requirements of finance and it assist them in developing a better organisational structure in an effective manner. Different kinds of sources of funding that are available are given below:
Loans: This is one of the external sources that helps a company through funding. A certain amount of cash is borrowed form the bank or other financial institutions with some amount of interest in return (Song and Lin, 2010). Thus, the provided funds helps an organisation in running their business activities in an effective manner.
Equity: This is used for accomplishing the funds or capital that is needed and this is issued through share capital and generating funds from people.
Retain earnings: This is used by travel and tourism sector so that they can retain some amount of money if they face any losses in their business operations.
From this report, it can be evaluated that, if management of a company wants to increase its value than it is essential that they understand the importance of cost, volume and profit. Other than this, they can use management accounting so as to make appropriate decision for their business operations and for this, they optimise all the tools that are available in the market area.
Book and Journals:
Evans, N., Stonehouse, G. and Campbell, D., 2012. Strategic management for travel and tourism. Taylor & Francis.
Gibson, H.J., Kaplanidou, K. and Kang, S.J., 2012. Small-scale event sport tourism: A case study in sustainable tourism. Sport management review.15(2). pp.160-170.
Henderson, J.C., 2010. Sharia-compliant hotels. Tourism and Hospitality Research.10(3). pp.246-254.
Heung, V.C., Kucukusta, D. and Song, H., 2011. Medical tourism development in Hong Kong: An assessment of the barriers. Tourism Management.32(5). pp.995-1005.
Morrison, A.M., 2013. Marketing and managing tourism destinations. Routledge.
Murphy, P.E., 2013. Tourism: A community approach (RLE Tourism). Routledge.
Nielsen, H. and Spenceley, A., 2011. The success of tourism in Rwanda: Gorillas and more. Yes Africa Can: Success Stories from a Dynamic Continent, pp.231-249.
Papatheodorou, A., Rosselló, J. and Xiao, H., 2010. Global economic crisis and tourism: Consequences and perspectives. Journal of Travel Research.49(1). pp.39-45.
Pike, S., 2012. Destination marketing. Routledge.
Ritchie, J.B., Amaya Molinar, C.M. and Frechtling, D.C., 2010. Impacts of the world recession and economic crisis on tourism: North America. Journal of Travel Research.49(1). pp.5-15.
Song, H. and Lin, S., 2010. Impacts of the financial and economic crisis on tourism in Asia. Journal of Travel Research.49(1). pp.16-30.
Spenceley, A. ed., 2012. Responsible tourism: Critical issues for conservation and development. Routledge.
Theurillat, T., Corpataux, J. and Crevoisier, O., 2010. Property sector financialization: the case of Swiss pension funds (1992–2005). European Planning Studies.18(2). pp.189-212.
Wong, E.P., Mistilis, N. and Dwyer, L., 2011. A framework for analyzing intergovernmental collaboration–the case of ASEAN tourism. Tourism Management.32(2). pp.367-376.