Delivery in day(s): 5
The first part of this assignment focuses on the importance of various sources of finance and the impact they have on the organization as a whole. In the later parts importance has been laid on various methods of costing and how decisions are taken based on such methods.
Capital is not only required to set up a business but a business may require additional funds or capital to carry on their day to day activities. The funds required by an organization will depend upon the type and size of the organization. Short term capital is required where the organization is in a need of working capital and long term capital is required for the expansion of the business.
Equity Financing is the process of raising funds through by issuing shares. It is the most costly source of finance as it involves payment of dividend to the shareholders from the net profit after the payment of all government taxes, interest on debt and preference dividend. Hence there is always of risk of non-payment of dividend. It works as a base for creating the debt and loan capacity of the organization. (Carpenter and Petersen, 2002)
Debt Financing is the process of borrowing funds from the outsiders. It carries a promise by the organization to pay a fixed amount of interest, at a specified time and also repay the principle amount at the end of the specified period. As the debt holders are the creditors of the company, in normal situation they do not have any voting rights in the company’s affairs. (Campello, 2006)
Theme Park Industry Overview:-
Theme Parks are generally engaged in operations such as mechanical rides, water rides, refreshments, picnic grounds, game shows etc. These are the areas of operations from where Theme Parks generate their revenues.
Sources of Revenue:-
Theme parks generally have both Direct and Indirect Method of generating revenue. Admission to the Rides & Attractions is basically the direct method of generating revenue while restaurants, picnic garden etc. are the indirect way of generating their revenue.
The biggest source of revenue comes from the direct method i.e. admission to the rides & attractions. Almost 80% of revenue comes from these sources. The theme parks divide their whole space intro rides and attractions, restaurants, picnic gardens etc. People get access to these areas after paying the requisite fees. Theme parks use the space to generate revenue from different sources such as admission to the areas of attractions and rides, shops, recreations, fishing. Theme parks sell their tickets which has a particular time span. (Adams and Perkins, 1991)
The main sources of revenue of theme parks are illustrated with the help of the figure shown below:-
The various types of cost incurred by the hotel are as follows:
Direct Cost: Salaries, linens, crockery, food and drinks, retail expenses, occupancy cost.
Indirect Cost: Room cleaning supplies, fire insurance, supplies used in spa and gym.
Fixed Costs: Salaries paid to employees, Salaries to bus drivers and attendants, Maintenance cost, Salaries to restaurant staff, cost of operating spas. (Hundal, 1997)
Variable Costs: Food, Drinks, Cost of Operating Busses (Fuel)
2.2d. Evaluate the limitations of cost-volume-profit analysis
The cost volume profit (CPV) analysis is made under certain assumptions and undergoes certain limitations such as:
One of the key factors for the success of Travel and Tourism industry is formulating a proper pricing strategy. In order to ensure that the customers purchase your product it is important to set a price which is consistent, accurate and competitive.
The following are the Pricing Strategies that can be followed by Icon and Upper House:
All travel and tourism industry must have a Rack rate. It is the full rate without any discount printed on the brochures for the season ahead
The standard way of pricing is to mix the price throughout the year to cover low and high for different level of demands due to the time in a year. These will be the same day in a year which may also apply for school holidays and local events.
Last Minute Pricing:
The last minute pricing is basically discounting daily prices according to the bookings made for accommodation of suppliers to fill those last minute gaps in inventory available.
To be in a better position in the competitive market discounting will be key strategy for the Icon and Upper House. By continually discounting the price to stimulate demands profitability has to be foregone or even missing the vital breakeven point. (Davies and Downward, 2001)
An organization has to keep a record of the stock as that can affect the profitability of the business. The carrying cost and the ordering cost has to be taken into account. In order to keep a tab on the cash flow and inventory the organization will have to assess the following:
Apart from the suggestion made above the organization can also have a Just in Time purchasing system and can have good retail software. This would allow the organization to save on the carrying and other related costs and keep the cash flow intact.
Calculate the direct material price and usage variance.
b. Calculate the direct labour rate and efficiency variance
c. Explain the possible reasons why these variances may have occurred
The variances may have occurred due to the following reasons:
The source and structure of the trial balance
The trail balance is mainly prepared to check the accuracy of the double entry system. The trial balance has two sides. The first is the debit and the other is the credit side. Every entry should have a debit and a credit aspect. All the debit figures are shown on the debit side and all the credit figures are shown on the credit side. This means that the total of the debit side should be equal to the total on the credit side. However where the debit and the credits have been posted to the wrong accounts the trial balance cannot detect such errors. (Coombs, 1981)
Discuss the budgetary control process and how this process helps management decision making at Icon Hotel.
Budgeting is an important tool by which an organization makes its future plans. It helps an organization to plan where it will incur cost and from where revenue will come from.
The process of Budgetary Control involves the following steps:
It would help management in decision making at Icon Hotel in a number of ways:
Since the sales have increased by 12% from the last year the expenses of the company rose up to 23% resulting in a huge gross loss. The company should take initiative to control the outflow. Company is highly dependable on the external funds resulting an increase in the interest expense of 58% from the last year as a result of which there is a huge net loss of the company. In order to maximize profitability the company should take initiative to work on the financial performance. (Helfert, 1994)
The assignment solved above give us a clear understanding of Financial Management, Accounts and Costing system. The application of the above will help an organization to keep a closer look into its pricing strategy and build a strong background.
Adams, J. and Perkins, E., 1991. The American amusement park industry: A history of technology and thrills. Twayne Publishers Boston.
Campello, M., 2006. Debt financing: Does it boost or hurt firm performance in product markets?. Journal of Financial Resources, 82(1), pp.135--172.
Carpenter, R. and Petersen, B., 2002. Capital market imperfections, high-tech investment, and new equity financing. The Economic Journal, 112(477), pp.54--72.
Coombs, H., 1981. Trial balance. MacMillan Melbourne.