Finance is considered to be as an essential resource which is required by each and every organisation for facilitating business operations in a systematic manner .It is very important for manager in an organisation to gain knowledge about the several tools and techniques of managing finance .As management of funds as well as financial resources is necessary, as it has direct as well as significant impact on the financial performance of an enterprise. The lack of financial resource's have major effect on the buying power of firm which might lead to the compromise in quality of products or services. It is required by finance manager in an enterprise to determine the need of funds. As this activity will help manager in fulfilling the business needs. There are three main elements such as volume, cost and profit which are considered by companies operating in tourism sector.
The report focuses on identifying the different tools as well as techniques which can be used for financial analysis. It also emphasizes on analysis the significance of the three factors such as cost , price and volume when determining the price of goods or services in tourism sector in context of Carnival Corporation & Plc. and Dalata Hotel Group.
1.1 Explaining the significance of cost volume as well as profit in financial management of travel and tourism businesses
There are several tools as well as techniques used by the Carnival Corporation for managing the funds as well as for financial analysis. These financial tools assist business entity in measuring their financial performance and identifying the way to improve the same. It also enables an organisation to recognise the new as well as cheap source of raising funds. There are various factors to be considered by an enterprise and methods to be used. Financial analysis techniques also help manager in allocating the funds and ensuring the effective as well as efficient utilisation of financial resources. It also assists management team in making suitable business decisions and analysing the ways to reduce the costs. Effect accounting as well as financial management system helps firm in controlling the flow of funds as well as support in maintaining the financial performance of company.
The various factors which are considered to be are:
Cost, Volume and Profit-It is considered to be an important part to be considered when conducting financial analysis. As this constituent assist management in making suitable business decision and provide manager an ease in determining the prices of goods or services. Cost, Volume and Profit analysis also support manager in recognising the fluctuation in costs and profit. It also helps the management team in ascertaining the reason for major fluctuation and analysis the way to increase profits and sales. In context of Carnival Corporation & Plc, finance manager in an organisation should plan appropriate strategies for reducing the operational expenses. As this plan or technique swill help a business entity in increasing profitability. It will also assist an enterprise in fostering growth. Financial or cost, volume and profit analysis is based on the several assumptions which help in ensuring that all the activities which are conducted within an enterprise are increasing the value and contributing to the profitability of firm. It also helps management team in identifying as well as eliminating the activities or operations s which are leading to increase in unnecessary costs. Cost, Volume and Profit analysis also assist management team in making decision related to the action which are to be taken in future regarding the production of specific product. It helps the manager in identifying the products as well as customers which helpfirm in yielding high profit and are contributing towards growth of business. Manager in Carnival Corporation should apply this technique in operational department. As this strategy will assist business entity in reducing the cost of production as well as preventing the wastage of financial resources. It is essential to have the sufficient information regarding the costs and expenses incurred in the operations.
Business volume – It is required by the management in an organisation during peak seasons as well as when making strategic plan. Travel and Tourism business is a kind of seasonal business. People plan their holidays during summer and winter vacations. Management should consider the business volume so that it can frame strategies for operational activities and make effective cost control.
Costs -There are different costs and volume method which can be utilised and analysed by the professionals at Carnival Company .These are:
- Direct costs-It is those expenses which are related to the production of goods and delivering the products to customer. Direct costs can be included in the price of goods. It is easily tractable as well as can be recovered. Examples: money spend for buying raw material, labour etc.
- Indirect cots- These are the expenses which incurred during the production of products or services. For instance, electricity charges repair as well as maintenance of machinery etc. Indirect cost can also be charged by customers in indirect way such as by including price of goods or services. In context of Carnival Corporation, manager when determining the price of products or services required to be considered several factors such as expenses incurred by firm for providing the transportation or other special facilities to tourists.
- Variable costs-It is recognised as the expenses which are not fixed and fluctuates with the change in activities or procedures. A variables cost varies as per the change in the volume or quantity of production. In context of travel and tourism sector, the variable expense includes fluctuation in prices of goods or services, taxes and exchange rates. These costs have direct as well as significant impact on the profit margin.
- Fixed Costs-It remains constant during the specific procedures. Fixed costs include various expenses such as parking charges, salary of the employees etc.
- Apportionment-It is required to be considered as an effective technique which is utilised by an organisation for centralising the expenses such as payment of wages, salaries and other relevant business cost. It helps the management team in determining the price of products or services.
- Allocation- It is considered to be a technique which is helpful in determining the costs required to be incurred as well as funds which will be needed for facilitating particular operations.
- Break even analysis- It assists management team in determining the product or services that an enterprise wants to sell in order to recover costs of doing business. Break even analysis is also considered to be an effective tool which assists in estimating or identifying the level of profitability.
- Economies of scale- This technique assists an organisation in identifying the new sources, methods or way of increasing revenue. There are several sources from where the Carnival Corporation can raise funds for fulfilling the requirement of operations.
- Diseconomies of scale -It is recognised as a phase e where the economies of scale such as supporting units in an enterprise are no longer functioning. In other words, firm does not have much potential to earn higher revenue.
1.2 Pricing methods utilised in travel and Tourism sector
Price is defined as the amount of money expected, required, or given in payment for something. Especially in the service industry, the most difficult task is to determine or set the price of products or services. There are several methods or techniques used by companies operating in travel and tourism sector, for setting the price of products or services. Some methods which are utilised by an organisation operating in tourism sector includes value adding technique, cost plus pricing technique, discounted pricing etc. It is very much essential for management team in an enterprise top set price on the basis of value or satisfaction gained by customer when consuming specific good or services. As this strategy will assist business entity in attracting more number of customers and increasing sale. Some of pricing methods are:
- Market lead pricing-The Company with this type of technique, determine or set the prices of the product or services as pert the tour packages which are already offered by its competitors. Market lead pricing helps an enterprise in attracting the customers and enables form to gain competitive advantage in the market. This pricing strategy also helps business entity in increasing sales as well as profitability.
- Cost and pricing – This method or pricing technique can be used by Carnival Corporation, for setting the price of tour packages. In this pricing strategy, company considered as well as include both direct, indirect expenses and profit margin when setting the prices of goods or services which are to be charged by customers. In context of Carnival Corporation, it is required by the management in an organisation to evaluate break even point. As this strategy will assist an enterprise in earning the sufficient amount of profit or high return on their investments in business.
- Marginal cost pricing method- Business entity which uses this pricing also includes extra expenses in price of products or services. This type of pricing all the cost as well as expenses which are incurred by an organisation in organising the tours are included in the price. By Marginal cost pricing method, Carnival Corporation can easily recover its expenses incurred by an enterprise in organising another tour package.
- Demand oriented price method- As per this technique; prices of the product or services are set by travel companies by considering the demand of the goods or services. For instance, during the peak seasons, there is a high demand tourism product or services, at that time price of tourism services are generally high.
- Skimming pricing method-This pricing technique is generally adopted buy business entity for becoming the market leader. In this pricing techniques, companies operating in tourism sector set high prices for their respective products and services. By adopting this strategy, Carnival Corporation can easily as well as quickly recover the cost incurred by an organisation.
1.3 Analysing the factor s affecting the profit for travel and tourism sector
There are several variables which have direct as well as significant effect on the profits of travel and tourism industry. Such as:
Environmental factors: During holiday time, there is a high demand of the tourism products as well as services. During such season, Carnival Corporation earn higher profits and generate revenue from several business operations and able to recover the expenses. However, at the time of off-season, an enterprise has to face difficulty in fulfilling business requirements. Environmental or seasonal factor has direct as well as major influence on the earning capacity as well as profitability of Carnival Company.
Political constituents: This variable has great effect on an enterprise which is operating in tourism sector. Situations like political instability, wars etc. have negative influence on the tourists choice related to destinations further it has effect on the demand for services or products offered by travel companies.
Social factors: the culture and traditions of certain countries would not be allowing us to do certain things in those nations. It is required by management team in Carnival Corporation to identify the needs of the customer and develop the understanding on the culture or tradition in particular nation. As this strategy will assist manger in planning for services or products. It will also help business entity in increasing sales as well as profitability.
Economic factors:It includes changes in interest as well as exchange rate will also be affecting revenue generating capacity of company. Economic consistent also have direct as well as significant influence on the financial performance of an organisation and also on the profit margin.
2.1 Different types of management accounting information which can be utilised by tourism industry
Management accounting techniques assist management in improving bushiness activities as well as executing several operations in smooth manner. This accounting method involves the revelation of financial statement which is beneficial in terms of creating the budgets, analysing the variation in profit as well as sales, identifying the financial performance of company etc. It is required by the Dalata hotel to adopt the management accounting tools as well as techniques. This strategy will assist manager in making appropriate business decision.
Objective of management accounting information is to provide all the useful information which is collected from different departments in an enterprise. Such information are required to be analysed as well as interpreted in systematic manner by finance manager in Dalata hotel. Management accounting system consists of all relevant information such as revenue, profit earned by an organisation, expenses or cost incurred by company during specific financial year etc. It also assists firm in improving business performance.
Management accounting system can be used by manager in Dalata hotel. For forecasting revenue and preparing the budgets. This accounting information when adopted or implemented by Dalata hotel will support an organisation in making suitable decisions as well as will provide several other benefit such as Ease in comparing the
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There are many techniques which can be adopted by management in Dalata hotel, which will assist an organisation in reducing the cost, increasing the profit margins. It will also help an enterprise in bringing improvement in business operations. Some of the tools as well as strategies are:
Ratio analysis-It is recognised as a quantitative analysis of information contained in a company’s financial statements. This technique is utilised by an organisation for evaluating several aspects of business operations financial performance such as its efficiency, liquidity, profitability and solvency.
Budgets -The purpose of preparing the budget is to help business entity in controlling the expenses and assist firm in maintaining financial stability. Budget is prepared by the financial department in an organisation on the basis of revenue earned as well as expenses incurred by the firm during previous financial year. It helps management team in formulation of plan for controlling the cost or other expenses in the future. Manager in Dalata hotel is required to prepare flexible budget. This strategy will assist an organisation in reducing the negative effect on economic factors on business operations.
Financial Statement- It is required by the finance manager in Dalata hotel to keep record of financial transactions in systematic manner. As this will assist management team in identifying the actual financial performance of company. It supports manager in identifying the actual income earned and expenses incurred by firm during specific financial year. Dalata hotel is required to implement reporting system at workplace. As this strategy will help business entity in controlling the financial transaction as well as costs. It is required by top-level management to delegate roles as well as responsibilities to the head of functional department to ensure that all the activities are conducted as per the prescribed budget. Financial statement includes several financial records such as balance, income and expenditure account, cash flow statement etc.
Variance analysis-It helps manager in identifying the performance gap. This technique also helps management team in identifying the reason for variation in output.
2.2 Assessing the utilisation of management accounting information system as decision making tool
It is required by the Dalata hotel to adopt the management accounting tools as well as techniques. As this strategy will assist manager in making appropriate business decision.
Objective of management accounting information is to provide all the useful information which is collected from the different departments in an enterprise. Such information is required to be analysed as well as interpreted in systematic manner by finance manager in Dalata hotel. Management accounting system consists of all relevant information such as revenue, profit earned by an organisation, expenses or cost incurred by company during specific financial year etc. It also assists firm in improving business performance.
Improving business operations-Management accounting techniques assist management in improving business activities as well as executing the several operations in smooth manner. This accounting methods involves the revelation of financial statement which is beneficial in terms of creating the budgets, analysing the variation in profit as well as sales, identifying the financial performance of company etc. (Hess and Kelman, 2017)
Forecasting - Management accounting system can be used by manager in Dalata hotel. For forecasting revenue and preparing the budgets. This accounting information when adopted or implemented by Dalata hotel will support an organisation in making suitable decisions as well as will provide several other benefit such as ease in comparing the trends.
Investment decision- Management accounting system can also be utilised by manager in Dalata hotel for making suitable business decisions, such investment, raising capital, meeting budgets as well as objectives.
Performance evaluation – manager in an organisation can use management accounting system for collecting information in order to evaluate business performance. It can be utilised for identifying the performance gaps as well as reason for the same.
Financial analysis- management accounting information system is used by stakeholders in Dalata hotel for analysing the financial status of company. It can also be utilised for measuring the efficiency of firm (Divisekera and Nguyen, 2018)
It has been concluded from the assignment that in terms of the sources of funds generating for the development of capital projects it will be advantageous to have proper financial assistance. Project has also concluded that financial analysis's well as management accounting system plays important role in reducing the expenses as well as helping firm in maintaining its financial stability. These are tools which assist business entity in increasing profitability as well as controlling the business transactions. It has been concluded from the study that Dalata Hotel Group plc is performing well in the market but still there are several areas where an organisation can bring improvement. Study has highlighted the some management as well as analysis tool s and techniques which can be used by an enterprise for measuring financial performance of company. It has been concluded from the report that Management accounting and financial analysis of the business assist manager in making suitable business decisions. Budget is recognised as the appropriate tool which can be utilised by firm, for reducing the expenses as well as controlling cost.
It has been suggested to Dalata Hotel Group plc, management team in an organisation should adopt the appropriate techniques, strategies, or techniques for increasing working efficiency.
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