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Finance Hospitality Assignment Sample

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37655 Downloads I Published: 22 Aug ,2016

Introduction to Finance And It's Need

Finance is the one the major element of the business which facilitates in fulfillment of organizational goals and objectives. In the hospitality industry, success of an organization highly depends upon optimum utilization of financial resources and decisions (Jang and Park, 2011). Finance manager of an organization plays a vital in making competent financial strategies and policies which helps the company in achieving success. The present report will discuss the sources of funding which are available to Mr. Stephens. Besides this, it depicts various methods which are available to Mr. Stephens in order to generate more income. This report will develop understanding regarding the ways through which an organization can control stock and cash related activities. It also emphasizes on the relationship between cost, gross profit and selling price of the products and services. Further, it depicts ratio analysis which helps Grimes and Giants theme park in assessing their financial health and performance.

Finance & Hospitality Assignment Sample

TASK 1

1.1 Reviewing the sources of funding which are available to Mr. Stephens along with their pros and cons

Bank loan

 It is the most important source of finance which can provide financial assistance to Mr. Stephens in meeting their needs. Interest is one of the major sources of income so banks are always ready to give loan to the borrowers. In order to raise fund through bank company has to deposit a collateral security (Wood and Brotherton, 2008).It helps organization in fulfill their financial needs and requirements to the large extent.  
Advantages:  Easy payment system in the form of installment is one of the main benefits of the bank loan which reduces financial burden of the borrower.  
Disadvantages: For such kind of financial assistance, bank charges very high rate of the interest which imposes high financial cost in front of the borrower.

Friends and family

 Mr. Stephen can also meet their financial requirements by taking financial support from friends and family members who are very close to him.  
Advantages:  By giving ownership to the friends and family members in business Mr. Stephens can easily take financial support from their loved ones.  
Disadvantages: One of the major drawback of taking financial support from friends and family is they would interrupt in decision making of an organization (Park and Jang, 2014).Shareholders of an organization have the right to participate in the decision making which imposes difficulty in front of Mr. Stephens.

Leasing

It is another important source of finance which provides assistance to Mr. Stephens in fulfilling their financial needs. Leasing provides financial support to the organization by giving right to them in relation to use assets for the predetermined time period.  
Advantages:  One of the major advantages of leasing is that hirer can use assets without making huge investment in it.Through this, he becomes capable to invest their money in other productive purposes (Shariff, Kayat and Abidin, 2014). In addition to tax advantage is also one the main force which attract organization to make use of the asset on the basis of leasing rather than purchasing it.  
Disadvantages: In leasing, owner of the asset charges high rent from hirer for giving right to make use of the assets.  
On the basis of the pros and cons Mr. Stephens is required to approach bank for the loan to meet their financial needs and requirements. It proves to be beneficial for him in achieving success in dynamic business environment.

1.2 Evaluating the contribution methods which helps in generating income with context to the business scenario
    

There are several methods available which provides assistance to Mr. Stephens in generating more income.In the hospitality industry, success of an organization is highly dependent upon the satisfaction of customers’ needs and wants. Thus, sponsorship, commission, promotional policies and strategies are the most effective methods which help Mr. Stephens in maximize their profit aspect. By hiring the commission agent organization can increase their customer traffic (Mota and et.al, 2014) In addition to this, by undertaking promotional strategies and campaign organization can easily attract the large number of customers. It provides more assistance to the company in improving their gross margin.However, it is to be critically evaluated that promotional campaign requires huge investment which imposes financial burden upon the organization. On other hand, the company is also required to pay commission to the agent for their services which impose high financial cost in front of the company.  
Sponsorship is cost effective methods which helps corporation increasing their profit margin without making any huge investment. By approaching the well known brand for the financial support and assistance company can increase the awareness in relation to the product and services which are offered by them (Chang and  Tse, 2015). It proves to more beneficial for the company in terms of building distinct image in the mind of the target market mind.

TASK 2

2.1 Discussing the elements of cost, gross profit and selling price for the product and services
Elements of cost: There are mainly two elements of cost which organization has to incur in relation to production of goods and services which are given below:
Direct cost: It can be defined as those which are directly traceable to particular product. It is also termed as prime cost which includes material, labor and other expenses which are incurred by an organization in relation to manufacturing of the particular product (Brand and et.al, 2014). They are directly accountable to cost object for instance: salary of the employees. Rent of the building etc.  
Indirect cost: These costs are those which are not directly related to production of a particular product. Indirect costs either may be fixed or variable which are highly dependent upon nature of the expenses incurred by the firm.
Gross profit percentage: It represents fixed percentage or amount which organization wishes to earn by selling per unit of product and services.  
Selling price: It can be defined as a combination of per unit cost of the product and gross margin. Per unit cost refers to the amount which organization has to incur in manufacturing the product or service; while profit margin refers to the amount which they wishes to earn (Jang and Park, 2011). It is the price through which organization is able to recover their initial expenses and is able to make profit.  
Relationship between cost, gross profit and selling price are as follows:
Selling price = cost + cost *profit%
For instance:

Cost of the product (per unit  £)

% of gross margin

Selling price ( £)

400

15

400 + (400*15%)

= 400+60 = 460

2.2 Evaluating the methods of controlling stock and cash in the business and service environment
Several methods which company can use to control their inventory level includes just in time technique, economic order quantity and preparation of inventory budget. Just time is the effectual technique which helps corporation in reducing carrying and holding cost. According to this technique, organization place order of inventory only when they are needed. They do not prefer to maintain extra inventory for the emergency (Perini and et.al, 2014). Thus, it helps organization in reducing the storage cost there by helps in improving their gross margin. However, it is to be critically evaluated that company does not maintain stock of inventory with itself which may cause of delay in the manufacturing activities. Besides this, company has to incur high ordering cost for the small as compared to bulk.  
Further, organization can also control and maintain their inventory level to the great extent by preparing inventory budget. By estimating the stock which organization is required to produce the predetermined output company can maintain their inventory more effectively and efficiently. Economic order quantity is the most effective technique which helps organization in reducing their ordering cost. In this, organization makes efforts to assess the level to which they needs to kept inventory with itself (Zhang and et.al, 2014). This technique ensures smooth functioning of the business operations and functions. Economic order quantity provides more benefit to the enterprise in terms of less expenses and high profit margin.

Along with it, cash is one of the crucial elements which play an important role in the organizational growth and development. Thus, organization also needs to frame competent strategies and policies to control the cash related activities within the business and service environment. Besides this, in order to control cash related activities organization needs to make assessment of their income and cash flow statement. Through this, company is able to find out the areas of expenses where they need to make control by reducing the wastage (Huiskonen, 2014.). It helps organization making effective use of their financial resources.

TASK 3

3.1 Sources and structure of trial balance and preparing the trial balance by using the given data
Trial balance can be defined as a summary statement of ledger accounts which are formed by an organization. It has two sides such as debit and credit side which clearly states the transaction which are made by an organization during the accounting year (Baker and English, 2009). It is the initial step of preparing financial statements which helps the organization in making their balance sheet, cash flow and income statement.

Particulars

Debit (£)

Credit (£)

Bank loan

 

12000

Cash

11700

 

Capital

 

13000

Rates

1880

 

Trade creditors

 

11200

Purchases

12400

 

Sales

 

14600

Sundry creditor

 

1620

Debtors

12000

 

Bank loan interest

1400

 

Other expenses

11020

 

Vehicle

2020

 

Total

52420

52420

3.3 Purpose and process of budgetary control
    Budgetary control can be defined as a process in which finance manager of an organization sets goals and objectives and thereby compare actual performance with the budgeted performance. Through this, manager is able to take corrective measures at appropriate time to remove deficiencies which occurs in their performance.   

Purpose of budgetary control
One of the main purposes of the budgetary control is to coordinate the activities of different department of the firm (Peirson and et.al, 2014). It facilitates in achieving organizational goals and objectives within the time frame.   
Making control over unnecessary expenditure is also another main objective of the budgetary control.
Process of budgetary control    
In the first step of budgetary control finance manager of an organization makes estimation in relation to the income and expenses. On the basis of the previous performance and record manager can easily identify the expenses which they have to incur in order to produce the goods or services  
After making proper estimation of income and expenses finance manager of an organization prepare budget.  
In this stage finance manager take approval from higher authority before circulating the budget at the all level of an organization.  
Once approve have given thereafter finance manager circulate the budget within an organization. It enables them to perform their work in an effective manner.  
At this stage, finance manager of an organization compare actual performance with the standard performance and thereby find out the deviations occurs in the performance.
At the last stage, finance manager makes effort to assess the causes due to which variances are occurred in the performance. Through this, manager is able to undertake corrective measures within the time frame (Nahmias and Olsen, 2015.). It enables company to makes contribution in the achievement of organizational aims and objectives.   

Above mentioned variance analysis represents that actual sales of the company is lower than the budgeted sales. It shows that corporation fails to frame competent strategies which are one of the main causes of decreasing sales. Further, material variance shows that company has attained success in making optimum utilization of material. This aspect helps organization in offering the product or services at the very cost effective price. Further, price of the material is lower than the budgeted price. It shows that company have approached best supplier who supplies raw material to them at the optimum rate or price.Thus, material total variance shows that there is no wastage of material which proves to be more beneficial for them.  
Along with it, labor efficiency variances show that workforce had taken extra hours to accomplish their work activities and performance. Thus, company needs to motivate their workforce to perform their work and activities with the high level of efficiency. Besides this, increasing labor rate is one of the main cause due to which variances are occurred in the labor performance. Thus, to overcome this problem organization needs to make policies which motivate the human resources of an organization to the large extent. Fixed and variable overhead variances shows that company fails to meet the budgeted performance. Thus, organization needs to undertake effective measures to make control over their expenditure. It provides assistance to the company in reducing the expenses and thereby improving the profit margin of the organization.

 TASK 4

4.1 Calculation and analysis of ratios of Grimes and Giants theme park
Ratio analysis can be defined as a technique through which one can easily assess their financial health and performance. It provides deeper insight to an organization about their liquidity aspects and soundness of their business operations and functions (Mishan, 2015).

On the basis of the above mentioned analysis it has been interpreted that profitability aspect of Grimes theme park shows consistency in their performance. Whereas, gross and net profitability of Giants theme park reduced in the year 2014 as compared to 2013. It is not good sign for the company which places negative impact on mind of investors. In addition to this, sales of Giants theme park have recorded negative trend in their growth and performance. It represents that Giant park has failed to undertake competent strategies and policies in order to push up their sales. Besides this, efficiency ratio shows that Grimes theme park have attained success in making optimum utilization of their resources in comparison to giants park.  
 Along with it, creditor’s payment period of Grimes theme park is less which represents that company has enough working capital as compared to Giants Park. Further, liquidity position and performance of Giant Park is very sound. Besides this quick ratio of Giant park exceeds ideal ratio of .5:1. In addition to this, Grime Park gives dividend to their shareholders at the increasing rate which helps them in strengthening their brand image. Dividend per share of Giants Park is decreasing from 12 to 10 which place negative impact on the investment decisions of existing and potential shareholders.  

4.2 Recommending the future management strategies based on the basis of ratio analysis
On the basis of the above mentioned analysis Giants Park needs to undertake promotional strategies and policies to push up their sales and profit aspect. In addition to this, Giant Park is required to make competent strategies and policies which enable them to make optimum utilization of their financial and human resources. Through this, Giant Park is able to generate more revenue as compared to their competitors. In contrary to this, Grimes theme park is required to control their expenses and thereby should focus on improving their current and quick ratio.

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Through this, Grimes theme park is able to meet their current obligations from the current assets of an organization.  
In this case, quick ratio of Giant Park is more than the ideal ratio so they need to invest in other productive activities. It provides assistance to them in improving their profitability aspect which helps them in building and sustaining competitive advantage over others. In addition to this, Giant Park needs to make efforts to reduce creditor’s payment period which helps them in getting cash as quickly as possible. In addition to this, Giant Park needs to give dividend to shareholders at the consistent rate. Through this, Giant Park is able to build and maintain faith in the mind of the investors.   

TASK 5


5.1 Categorization of cost in terms of fixed, semi-variable and variable cost
Classification of cost areas under:
Fixed cost: Fixed cost can be defined as those which organization has to incur irrespective of the any business activity. They are those which remains fixed irrespective of the level of output produced. For instance: depreciation, wages, salaries, rent and insurance etc.  
Semi-variable cost: Semi-variable cost can be defined as the combination of fixed and variable cost. They are those which remains fixed at the certain level of output and becoming variable when predetermined level of output exceeds (Zhang, Chiang and Wu, 2014). For instance: Electricity expenses, advertisement etc.  
Variable cost: It may be defined as those which vary in relation to the changes take place in the level of output produced. Variable cost of the product increases as production increases and it decreases when production falls. For instance:  material and other utilities (Variable fixed and mixed (semi-variable) costs, 2015).

In order to get the breakeven point which represents the no profit a loss situation restaurant needs to serve approximate 36.84 customers. It helps organization in recover their initial expenses which are made by them in offering the product or services to the customers.  


5.2 Calculation of the contribution per product/customer and stating the cost/volume/profit relationship
Calculation of contribution per product/customer, profit and margin of safety if restaurant offers their services to 80 people are as follows:

Calculation of margin of safety
Margin of safety = Actual sales – Break even sales
=1600 – 736.8
= £863.2
Profit volume relationship = Contribution/sales*100
= 760/1600*100
= 47.5%
Profit = margin of safety * profit volume ratio
= 863.2 * 47.5%
= £410.02
Profit per product/customer = 410/80
= 5.13
On the basis of the above analysis; if restaurant serve 80 people then contribution will be £760. In addition to this they will get £863.2 as a margin of safety and the profit will be £410.02.
Calculation of contribution per product/customer, profit and margin of safety if restaurant offers their services to 100 people are as follows:

Selling price per unit

£18.5

Variable price per unit

£10.5

Contribution per unit

£8

Number of persons

100

Total contribution

£800

Standard cost

£350

Profit (total contribution – standard cost)

£450

Break even analysis ( in units)

43.75

Margin of safety = 1850 – 809.38
= £1040.62
Profit volume relationship = 800/1850*100
= 43.25%
Profit = 1040.62*43.25%
= £450.06
Profit per product/customer = 450/100
= 4.5
    According to the above mentioned analysis contribution will be £800 when restaurant offers their services to 100 people. In this case, margin of safety will be £1040.62 and the profit which restaurant gets by offering their services are £450.06.


5.3 Short term management decisions based on the profit/loss potentials and break-even analysis
On the basis of the above profit or loss analysis it is recommended to Restaurant that they needs to offer their services to 100 people rather than 80 people. Restaurant get high margin of safety and profitability if they offer their product or services to 100 people as compared to 80 people. If actual sales are higher than break even sales then restaurant is able to generate high level of sales revenue (What is the margin of safety? 2015). As per the above analysis margin of safety is £800 in the case 100 people where as it is £760 if restaurant serves 80 persons. On the basis of this aspect organization prefers to serve 100people which helps then in build and sustain strategic advantage over their rivals.  

CONCLUSION

From this project report it has been concluded that Mr. Stephens needs to fulfill their financial requirements through bank loan. It helps them in attaining their goals and objectives. Besides this, it can be concluded that sponsorship is the very cost effective method which helps organization in getting high sales revenue. It can be inferred that there is the high interrelationship between elements of cost, gross margin and selling price of the product and services. It can be seen in the report that sales and profitability aspect of Grimes theme park is sound as compared to Giant Park. Thus, Giant Park needs to frame competent strategies and policies in order to improve their financial health and performance. This sample is © Copyright 2018 @ Instant Assignment Help Australia. Get free samples from professional writers in Australia.

REFERENCES

Baker, H. K. and English, P., 2009. Capital Budgeting Valuation: Financial Analysis for Today's Investment Projects. John Wiley & Sons.
Brand, W. A. and et.al., 2014. Assessment of international reference materials for isotope-ratio analysis (IUPAC Technical Report). Pure and Applied Chemistry.
Chang, S. and  Tse, E. C. Y., 2015. Understanding the Initial Career Decisions of Hospitality Graduates in Hong Kong Quantitative and Qualitative Evidence. Journal of Hospitality & Tourism Research.
Huiskonen, J., 2014. Service parts management: demand forecasting and inventory control. Production Planning & Control.
Jang, S. and Park, K., 2011. Hospitality finance research during recent two decades: subjects, methodologies, and citations. International Journal of Contemporary Hospitality Management.

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