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Different Types of Management Accounting of Dalata Hotel Group

University: UKCBC College London

  • Unit No: 2
  • Level: Undergraduate/College
  • Pages 15 / Words 3750
  • Paper Type: Assignment
  • Course Code: J/601/1742
  • Downloads: 3
Organization Selected : Dalata Hotel Group

INTRODUCTION

The travel and tourism sector plays an important role in every business. It enhances the performance level of every business. The present report deals with different situations and helps to understand the importance of cost, volume and profit for management decision-making in travel and tourism. The report also presents different pricing methods used in this sector and different types of factors that may affect the profit for travel and tourism business using Carnival Corporation and plc. The report explains different types of management accounting information that could be used in the travel and tourism business using Dalata Hotel Group. It also shows how management accounting information help in decision-making tool. The report also interprets the financial accounts of Dalata Hotel Group for the year ended 31st March. The report also helps to analyze sources and distribution of funding for the development of capital projects associated with the tourism sector.

TASK 1

P 1.1 Explaining importance of costs and volume in the travel and tourism business

The Carnival Corporation & plc is the world largest leisure travel company whose brands in North America, Europe and Australia. It also has 10 brands in different countries who offer different services to its customers through online and offline services (Johnstone, 2018). The company maintain its financial status by using cost, volume and profit which help in better decision making for travel and tourism sector and they all are dependent on each other. The importance of CVP for Carnival Corporation and plc is mention below:

Cost:

it is the most important to know the exact price of the product or services which are offered. Carnival Corporation provide services to customers and it is necessary to determine the cost because direct cost of offered services help to increase the management performance and the cost of offered services in a business can be reduces or increases as per the demand of market. The variable cost of product and services changes according to output and help in increases in the profit maximization (Pratheepkanth, 2018). It is necessary to know the exact price of the products and services which are offered by a company.

Volume:

For Carnival Corporation and plc, it is necessary to analysis the break even analysis because it is a point which help to determine which services are to be offered in order to attract more customers and to cover the price it is necessary to know the volume of customers as well as business. As the volume of production increases the economy of scale is also enhances. Huge volume of a business will help to increase the production level and travel sector always contributes the big portion of its share to the economy in UK. Carnival corporation have a large volume and it affect the economic as a result it also achieves its break even point where it sometimes earn no profit and no loss situation (Nitzl, 2018).

Profit:

To maximize profit, Carnival Corporation uses various method marginal and absorption costing method. If the company done reduction in his cost then it will help to achieve more profit. Sometimes factors like seasonal variation, political environment, planning, staff, current market trends, economic environment may affect the profit margin of a company. Cost, volume affect completely the profit of a company and using market- led, cost plus pricing, cost led methods a company can improve its maximization power of profit (Miller, 2018). These all CVP have its own importance and maintaining all three in proper ratio will help to improve the performance of a company.

P 1.2 Explaining various pricing methods used in travel business

There are various pricing method which are used by Carnival Corporation as shown below:

  • Competition based pricing: this is the most common practice used in hospitality industry and Carnival Corporation also uses this strategy. It is believed that sometimes rival companies know about strategies and plans and many companies follow this strategy with a fear that there price is out in a market. The owners of companies usually follow this strategy (Tan and et.al., 2017).
  • Target Price Method: this method states that every product in a company contributed some amount of profit for a company which is basically not possible. It is completely based on break even analysis. A good deal of hospitality industry try to reach the pint of break even by lowering or increasing the price with variable cost but they did not find success. This method is usually followed in food service industry because the generally divide the total amount by the number of customer reaches at the time of meal.
  • Cost based Approach:it is one of the simplest and easiest method used by travel and tourism sector because it so easy to understood and to implement (Booth, 2018). It simply adjusts the price of a product in order to achieve cost. The method is based on assumption that means other factors remain constant and unaffected in seasons. It is not good according to the criteria of markets because generally customers are more concern about what they get in return of their pay, they did not care about the prices or services which are offered.
  • Marginal costing: to increase or decrease in actual cost and this is done to maximize more profit. It is analyses that marginal cost are variable cost which varies from labour to expenses and in estimated portion of fixed cost. It is also called as choice cost or differential cost (Miller, 2018).
  • Absorption cost: to calculate the overall cost and it also includes all the indirect expenses as well as administration expenses. Generally travel and tourism sector do not apply this method because it is very hard to understand and implement on the company so that is why they avoid to suing this method.
  • Price Bundling: It is the most common method usually follow in hotel sector. A tour operator wrap accommodation, food, entertainment and sightseeing facilities in one single charge (Nitzl, 2018). This method help to gain economies of sale because people attract the bundle of services offered in such a low rate. Hotels offer weekend packages in such a cheap rate which include lodging, dinner and entertainment facilities.

It is advised to Carnival Corporation to use competitive pricing method because it will help to attract more number of customers and using this method company maximizes its profit during a year.

P1.3 Analysing factors influencing profit for tourism business

There are various factors that influence profit for Carnival Corporation and these are mention below:

Seasonal variation:

it is the most important factor that affect the profit of a company. Off season for a company will sometime create big loss and Carnival Corporation makes plan according to season such as it offer old people for touring in summer vacations because the generally dislike enjoying in freeze monsoon (Johnstone, 2018).

Economy:

it is the main factor which affect the sales and profit of a company because saving money for a people is the main agenda due to economic recession. They generally avoid to travel at this time and if there is a fluctuation in currency rate of UK then the company has to face a big loss.

Planning:

when the destination spot has a special event like marriage or festivals then the media coverage the whole attention and at that time travel and tourist sector does not plan for those area at that time to maximize the return on investment and the idea of attending big plans is helpful to organize events there.

Insufficient promotions and advertisement:

sometimes this factor is also affect the profit and revenue of sale. Carnival Corporation if offer some bundle of package to the people then it is necessary to let people know about their offering and it will only done through proper promotions and advertisement process. Using social sites and website is the another way to let people know about the services and products (Pratheepkanth, 2018). Inform about the offer tours to people will definitely help to increase its selling power and maximizes its profit.

Read also:
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Natural Disasters:

This is not controlled by humans as it is a creation of god. During any natural disaster heavy loss is occurred which lead to damages to various properties and loss of human as well as animal. Due to this tourist sometime cancelled the booking and protect themselves from any disaster and it leads to loss financially to a company.

Bad debts:

Sometimes bed debts may decrease the profit margin because the company may deal with those people who did not pay their fees on time (Nitzl, 2018). In hospitality industry, hotel hire their suppliers on commission basis but they also did not pay all the amount to a company at that time profit margin is affected and the revenue is also not increases because of having number of bed debts. In this situation, company should not deal with those people and do not offer such services which may affect the profit in future times.

TASK 2

P 3.1 Interpreting financial accounts of Dalata Hotel Group plc for two years

Computation of financial ratios of organisation

Particulars

Formula

2016

2017

Profitability ratios

Gross profit margin

Gross profit / sales revenue * 100

62.20%

63.20%

Net profit margin

Net profit / sales revenue * 100

12.02%

19.60%

Return on Capital Employed (ROCE)

Profit Before Interest Taxes (PBIT) / Capital employed

4.53%

7.56%

Return on Equity

Net profit / Shareholders' Equity

6.03%

10.06%

Liquidity ratios

Current ratio

Current assets / Current Liabilities

1.44 : 1

0.46 : 1

Acid Test ratio

Liquid assets / Current Liabilities

0.83: 1

0.35 : 1

Efficiency ratios

Debtors Turnover ratio

Credit sales / Average accounts receivable

42.04

41.53

Inventory Turnover ratio

Cost of Sales / Average stock held

69.4

71.61

Creditors' Turnover ratio

Purchases from supplier / Average accounts payables

42.33

38.98

Solvency ratios

Financial Gearing ratio

Debt / Equity

0.43

0.33

Debt to Total assets ratio

Debt / Total Assets

0.25

0.22

It can be analysed from the above financial ratios that Dalata Hotel Group Plc has overall good financial health. This is evident from the fact that profitability position is quite good. On the other hand, solvency, efficiency and liquidity position are assessed with the help of calculation of ratios. It can be said that position of firm can be evaluated in a better way by computing ratio analysis. Dalata Hotel Group Plc is one of the biggest company in hospitality industry and has large customer base leading to gain higher profits. Starting with profitability ratio such as gross profit margin was 62.20 % in the financial year 2016 and maximised to 63.20 % in 2017 which is raised to around 1%. It shows that organisation is being successful in reducing expenses particularly on operational one and hence, gross profit has been maximised quite effectually.

On the other hand, Net profit margin has been hiked up to a high extent as it was 12.02 % in 2016 and increased to 19.60 % in 2017. This clarifies that company is controlling its expenses in effective manner and which has given fruitful results. Furthermore, Return on Capital Employed (ROCE) is calculated which in 2017 was 4.53 % and reached to 7.56 % in 2017 which means that sales are produced by fully utilising investment in a better way. ROE is computed which was 6.03 % and increased to 10.06 %. This shows that organisation is able to generate sales by using shareholders' investment up to a high extent. Hence, profitability position of company is good and is earning well. Liquidity ratios are computed to highlights whether firm will be able to pay short-term liabilities in shorter period usually of one year or not.

It can be said that current ratio of Dalata Hotel Group Plc in 2016 was 1.44 : 1 which reduced in next year to 0.46 : 1. This shows that firm will face issues to make payment to external parties. On the other side, acid test ratio means whether firm would be able to pay current obligations with help of liquid assets or not. The ratio of company was 0.83 : 1 in 2016 and then decreased to 0.35 : 1 in next year. This means that firm will attain problem in paying from liquid assets. Efficiency ratios shows whether funds are attained in appropriate manner. Inventory turnover ratio 69.4 in 2016 and reached to 71.61 in 2017. This ratio shows how effectively organisation is using its inventory to generate production. The inventory ratio should be lower which shows firm is quickly using stock for productive activities. If you provide the best assignment help at the best price.

On the other hand, Creditor payment period is calculated which shows how quickly firm is making payments to suppliers on goods supplied on credit basis. It can be interpreted that lower the period, better for the firm as it shows efficiency in paying off outstanding money quickly. In this case of Dalata Hotel Group Plc, period in 2016 was 42.33 which reduced in 2017 as it reached to 38.98 which means that firm is making faster payments. The debtors turnover ratio was 42.04 in 2016 and decreased to 41.53 which highlights that firm has maintained strict credit policies which has led to collecting quicker outstanding amount from debtors. This shows efficiency of firm to be collecting money from customers.

Furthermore, solvency ratios shows how effectively company is using debt and finance in a better way. The Debt to total assets ratio was 0.25 in 2016 and reached to 0.22 in next year which shows that company has more debt in comparison to total assets. On the other side, financial gearing ratio was 0.43 in 2016 and reached to 0.33 in next year. This shows that firm has reduced debts in comparison to equity. It is good as solvency position will be good. Hence, overall financial health of Dalata Hotel Group Plc is remarkable as profits are attained in a better manner and as such, expenses are controlled as well. Thus, it has good financial position in the hospitality industry.

CONCLUSION

By summing up above report it is concluded that management decision making process help in business forecasting. The present report focus on the importance of cost, volume and profit for management decision making in travel and tourism. The report deals with various types of situation and every case concluded that financial practices play an important role in business. It help to determine the exact position of a business and also help in taking good and effective decision. The report concluded that for Carnival Corporation Group, competition pricing method is best method for attracting more number of customer. It also describe factors which influence the profit for a business. The report present different types of management accounting information which can be used in travel and tourism sector. It also assess the use of management accounting information as a decision-making tool. The report also interpret the financial accounts to assist decision-making in travel and tourism.

RERERENCES

  • Johnstone, L., 2018. Environmental management decisions in CSR-based accounting research.Corporate Social Responsibility and Environmental Management.
  • Pratheepkanth, P., 2018. Management Accounting Revolution: Developed and Developing Country.World Academy of Science, Engineering and Technology, International Journal of Economics and Management Engineering.5(3).
  • Nitzl, C., 2018. Management Accounting and Partial Least Squares-Structural Equation Modelling (PLS-SEM): Some Illustrative Examples. In Partial Least Squares Structural Equation Modeling(pp. 211-229). Springer, Cham.
  • Miller, G., 2018.Performance based budgeting. Routledge.
  • Quinn, M. and et.al., 2018. Future research on management accounting and control in family firms: suggestions linked to architecture, governance, entrepreneurship and stewardship.Journal of Management Control.28(4). pp.529-546.
  • Booth, P., 2018.Management control in a voluntary organization: accounting and accountants in organizational context. Routledge.
  • Jacob, M., 2017. Entrepreneurships and Startup Programmes: Opportunities in Travel and Tourism.Atna Journal of Tourism Studies.12(2). pp.51-65.
  • Morgan, N. J., Harrill, R. and Dioko, L., 2017. Travel and Tourism in Film and Literature: A Critical Review.Critical Tourism Studies Proceedings.2017(1). p.50.
  • Tan, S. H. and et.al., 2017. The impact of the dimensions of environmental performance on firm performance in travel and tourism industry.Journal of environmental management.203. pp.603-611.
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