Unit 2 Finance and Funding in the Travel and Tourism Sector

Introduction

Aim

This unit enables learners to gain understanding of costs, volume, profit, management accounting information, and sources and distribution of funding in travel and tourism, and gain skills to interpret financial accounts.

Unit abstract

The aim of this unit is to help learners acquire knowledge, skills and techniques that will assist with management decision-making processes. The unit looks at the importance of costs, volume and profit for management decision making in travel and tourism and the process and analytical skills needed to understand financial information. Thus the majority of this unit considers financial practices at the micro level, ie within a travel and tourism business. However, it also considers issues at the macro level, ie funding arrangements for tourism project development. The unit is designed for learners working towards a career at the supervisory/management level in the travel and tourism sector. As a result of studying this unit they will gain a basic understanding of financial systems and practices. This unit is not intended to be an in-depth accountancy unit and should be delivered with this in mind.

Learning outcomes

1. Understand the importance of costs, volume and profit for management decision making in travel and tourism

Costs: direct costs, indirect costs, fixed costs, variable costs, allocation and apportionment
Volume: break-even analysis, economies of scale, diseconomies of scale
Profit: pricing methods to achieve a profit eg cost-led, market-led, cost-plus pricing, contribution, absorption, marginal costing, top down, return on investment; reasons for making a profit, definition of profit, type of business; factors influencing profit eg seasonal variations, political environment, economic environment, social environment, current trends, bad debts, planning, staff

2. Understand the use of management accounting information as a decision-making tool in travel and tourism businesses

Management accounting information: financial statements, budgets, variance analysis, forecasts, MIS
Decision-making tool: comparison with trends, forecasting, investment, raising capital, new products and services, current issues, against set criteria eg profitability, solvency, meeting budgets, meeting objectives

3. Be able to interpret financial accounts to assist decision-making in travel and tourism businesses

Financial accounts: methods used to interpret financial accounts eg cash flow statement, trading account, profit and loss account, balance sheet of a typical travel and tourism related business

Measure financial performance: measure eg current ratio, acid test ratio, return on capital employed, capital gearing, return on net assets, debtors’ collection period, creditors’ payment period, ratio of administration costs to sales, net profit per cent, gross profit percent, stock turnover ratio as practised by businesses in the travel and tourism sector

4. Understand sources and distribution of funding for public and non-public tourism development

Sources: role of Department of Culture, Media and Sport eg National Lottery Commission; Office of Deputy Prime Minister eg European Social Fund, Regional Development Fund; sources and disbursement of funding through the Non-Governmental Public Bodies (NGPB)
Capital projects: projects eg Tourism Information Points, Interpretation Boards, small scale tourism/environmental improvement with associated interpretation, development of small scale heritage sites with interpretation and information, integrated footpath development and improvement, integrated bridleways development and improvement, cycle route development and improvement, provision of secure cycle storage, Pedestrian Fingerposts
Non-public funding: funding eg debt funding, equity funding and government funding