TRAVEL & TOURISM

Finance and Funding In Travel & Tourism



Introduction1

Task 12

Fixed Costs:2

Variable Costs:2

Importance of Cost and Volume3

Pricing Models4

Absorption Costing4

Target Pricing4

Penetrating Pricing5

Market Skimming5

Psychological Pricing5

Discount Pricing6

Factors Influencing Profitability6

Increase in Costs6

Decrease in Sales6

Increase in Taxes7

Task 27

Managerial Accounting Information7

Organizational Data7

Market Data8

Financial Data8

Importance of Managerial Accounting Information9

Task 39

Interpretation of Financial Data9

Operating Margin10

Return on Assets11

Return on Equity11

Current Ratio11

Task 412

Sources of Funding For Public and Non-Public Tourism Development12

Conclusion13

References15

Finance and Funding In Travel & Tourism

Introduction

The tourism sector is a growing sector in the economy in which the public and private sector both are important stakeholders. For the public sector, financing such projects is not a major issue as it leads to the economic development. However, from the viewpoint of the private sector, development of the tourism sector involves a lot of decisions (Tinsley & Lynch, 2001, 367-378).

The reason the private sector moves away from such development is that the returns on such investments may not be as attractive as other projects. Secondly, this business is affected a lot by the external environment therefore; it is not an easy task to make such decisions (Getz, 1993, 583-600).

These decisions require the need of understanding the relationship between costs, profit, and revenue (Garrison, Noreen, & Brewer, 2003). These factors alone can determine whether a project is feasible of not. However, there are several other considerations that the manager will have to keep in mind since there are various other factors that affect the profitability of an organization. This is where the role of managerial accounting comes to use. The benefit of using managerial accounting is that the manager will know the extent to which the prices and costs need to be adjusted in order to increase the revenue of the organization.

Task 1

While using cost, volume and profit, the breakeven point in units can easily be determined by dividing the fixed cost incurred by the organization by the contribution margin. The contribution margin is the contribution from sales that is used to reduce the impact of the fixed costs. It is calculated by deducting the variable costs from the sales price (Hilton, 1999, p. 568). In this way it can be determined the remaining portion of the revenue that will be used to contribute towards the fixed costs; therefore, the formula for calculating the breakeven point is:

Fixed Costs:

Rent£ 250,000

Advertisement£200,000

Management and administration fee £125,000

Brochures and distribution £45,000

Total Fixed Costs£620,000

Variable Costs:

Materials used per package£22

Employee cost£32

Other variable overhead per package £10

Total variable costs£64

This shows that by selling 20,000 units at a rate of £95, the organization will be at the point of breakeven and any further sales will contribute towards the profit of the organization.

Importance of Cost and Volume

In order to determine the most profitable combination of sales volume, selling price, fixed cost, and variable cost, cost and volume analysis is used. In most cases, the first step in cost and volume analysis is to determine the contribution margin. This helps in determining the level of fixed cost and sales that can help improving the ...