Management Accounting Information, Investment Appraisal Techniques And Pricing Strategies For ATC

Different types of management accounting information for ATC

Task-1

1.It is analyzed that cost is the important factor to determine the price and profit of the particular tour packages. It consists of direct, indirect, fixed and variable cost. However, this some of the cost of the tours and travel is semi-variable cost.

Direct cost- It is accompanied by the all the direct payment such as labor, staff members, and guides.

Indirect cost- this cost is related to promotion and strategic alliance consideration. For instance, payment by ATC for cruise yacht and the beach chalets will be included as the indirect cost.

Cost-volume-profit analysis of the ATC

It is the imperative tool to establish the relationship between cost, volume, and profit of the ATC. These all are interrelated to each other. This analysis is used to prepare cost sheet, breakeven point, and margin of safety and accomplishment of the pre-determined profit. ATC tours and travel could use this cost-volume-profit analysis to achieve desired profit from its business.  

Importance of the cost of the financial management of ATC tour and travel operator

• It increases the sales of the tours and travel packages in the market if cost is low.
• Bu using the cost of the tours and travel packages, the company could determine the point at which it will have the maximum amount of profit.
• It assists financial managers to determine the breakeven point of the business.
• It also favors in achieving the stipulated profit from the business.

Importance of volume (Units of tours and travel packages) in financial management

• It assists in identifying the margin of safety and minimum order quantity.
• It assists in reducing the amount blockage in the business.
• It determines the equilibrium point, inventory operation cycle.

2. The pricing strategy should be based on the basis of several factors such as nature of clients, their purchasing power, interest, choice of action and demand.  The ATC needs to use several pricing strategies to increase the overall turnover of its tours and travel packages.

Market leading pricing strategy

This pricing strategy is followed when the company wants to attract more clients and penetrate the market. It is further divided into following strategies.

Market penetration pricing strategy- This pricing strategy allows ATC to keep the price of its packages as low as it could to attract clients. It will result to the creation of cost leadership in the market.

Price skimming strategy- This strategy will be used by ATC when it has the high brand image. In this strategy, ATC will keep the price of its packages high to increase the overall profit (Long, & Shi, 2017).

Profit based pricing strategy

Competitors based pricing- It will allow ATC to set the tours and travel price at the same price at which other rivals are offering.

Client based pricing- This will be followed by ATC to collect every type of clients for its tour packages. ATC needs to customized its tours price as per the clients need in the market.  

Assessing investment appraisal techniques as decision-making tools in ATC

Return based pricing strategy

This pricing strategy will be followed when ATC has set particular % of profit in this business.

Costing based pricing

This pricing strategy will be followed at the time when ATC wants to run its business at Break Even point to attract more clients.

There are below given examples of the company who have followed different pricing strategy (Garibaldi, et al. 2017).

Name of the company	Price setting methods
Dalata Hotel	Cost leadership
TUI	Skimming strategy
Other small tour operators	Cost based strategy

3.There are several factors which will influence the profit of ATC on the holiday trip

Economic factor

The purchasing power of the people in the UK is high. Therefore, the people in the UK will be able to buy tours and travel packages at the increased price.

Government interventions and support

The government in the UK is more inclined towards supporting tours and travel operators to enhance the effectiveness of the operations of the tour to attract more foreign clients. The government support and subsidies may decrease the overall cost and increase the profit (Policy, et al. 2018). 

Seasonal factors

At the time of the season, ATC may set the high price for its tour packages but during non-season, it should keep the price of its tour packages low.

Strategic alliance

If ATC could reduce the cost of its tours packages by using proper strategic alliance then it should focus on using the same (Gupta, & Rout, 2016).

In the given case study, the total cost of the tours and travel package would be £ 6, 12,500.00 which is too high to earn the stipulated amount of profit (Picazo, & Moreno-Gil, 2018).

Cruise yacht and the beach chalets	£ 5,00,000.00
Meal cost	£ 1,12,500.00
Total cost	£      6,12,500.00

If ATC undertakes this tour packages then it will earn profit of £ 62,500.

Computation of the profit earned by ATC
Particular	Amount
Total sales amount for 90 tourist	£ 6,75,000.00
The total cost of the tour packages
Cruise yacht and the beach chalets	£ 5,00,000.00
Meal cost	£ 1,12,500.00
Total cost	£      6,12,500.00
Net profit	£         62,500.00

Therefore, it could be inferred that ATC is having profit less than £ 1, 00,000. However, it has still chance to continue with the project as it is offering the good amount of return (Smilov, 2016).

Task-2

1.This management accounting information could be used by management of the ATC to make effective financial decisions

Balance Sheet- By using this financial statement, management could determine the available assets and liabilities of the company (Xiang, Magnini, & Fesenmaier, 2015).

Cash flow statement- It consists of inflow and outflow of cash in the year. It could be used to determine the flow of cash in the business.

Budget- The budget is prepared to determine the future revenue and expenses of the company. It assists management of ATC to arrange the capital for the future revenue and expenses.

Different pricing strategies for ATC

Variance analysis- It is the quantitative investigation of the difference between actual and estimated figures. It assists management of ATC to determine the gap and the mitigation process to eliminate the same gap (Dhar, 2018).

Use of variance analysis to improve the existing operation of tours and travel business

It is observed that by using variance analysis, ATC could easily identify the gap between its expected and actual results. It will help ATC to develop tourism packages as per the need of clients which will eventually reduce the amount blockage in the business. For instance, if the prepared tour and travel package is 50 and demand of the market is 40 then, by using variance analysis, ATC will prepare only 40 tours and travel packages in the future to reduce the cost of the capital (Vazquez, & Federico, 2015).

2.There are several investment appraisal tools and techniques which could be used by the ATC while selecting the particular project in the business.

Net present value- It is the number of differences between the present value of cash inflow and outflow of the project. If the selected tourism project gives the positive NPV to ATC then it will not only increase the overall return on capital employed but also increase the efficiency of the business (Bernhardt, 2017).

IRR- It is also called internal rate of return of the company. This shows the % of return at which ATC will have zero net present value.

Payback period- It is the time period which will be required to collect the cash from the business. It shows the time which will be required to collect cash from the business. ATC will have short payback period due to its prepared tourism packages.

By using these investment appraisal tools and technique, it could easily identify whether the developed project will give proper benefit or not (Gretzel, et al. 2015).

Task-3

1.The below-given table reflects the different types of management accounting information which are given as below (Cook, Hsu, & Marqua, 2014).

Particulars	2017	2016
Current assets	98,771	1,62,278
Inventories / Stock	1,817	1,349
Current liabilities	68,821	56,238
Prepaid expenses	5,266	3,315
Average Inventory	1583	971
Sales revenue	2,90,551	2,25,673
Cost of sold	(1,09,864)	(86,907)
Credit Purchases
Gross profit	1,80,687	1,38,766
Net sales	2,90,551	2,25,673
Net profit	34,923	21,626
Capital employed	9,16,555	8,05,098
Interest	(11,496)	(10,363)
Total assets	9,85,376	8,61,336
Variable cost bearing capital	6,41,673	5,46,729
Fixed cost bearing capital	2,64,681	2,50,168
Administrative expenses	10	0

Computed ratio	Applicable formula	2016	2015	Discussion
Current ratio	Current assets / Current liabilities	1.435	2.886	This ratio reveals the company’s ability to pay off its short term and long term liabilities from its currents assets. It has reduced its current ratio to 1.43 which is 1.4 points lower than last year data (Becker, 2016).
Acid Test Ratio	Current assets – (stock + prepaid expenses) / Current liabilities	1.332	2.803	The quick ratio of the company has also reduced the acid test ratio which shows that company has reduced the amount blockage in its operating activities.
Stock turnover ratio	Cost of goods sold / Average Inventory	(69.40)	(89.50)	This ratio shows company’s efficiency to block its funds in its business. it is evaluated that stock turnover ratio has decreased to 69 points which is 19 points lower as compared to last year data.
Gross profit ratio	Gross profit / net sales X 100	62.19%	61.49%	This ratio shows the % of gross profit earned by the company. It has increased its gross profit by 1% which is the positive indicator for the company.
Net profit ratio	Net profit / net sales X 100	12.02%	9.58%	This ratio shows the positive profitability of the business. Company has increased its net profit by 3% since last three year which is a positive indicator for the organization.
Return on capital employed	Net profit/capital employed X100	3.81%	2.69%	The return on capital employed of the company is highly based on the efficiency and net profit of the company. It has increased its ROC by 1% in 2017 which is the good indicator.
Return on total assets	Net profit after tax / total assets X 100	3.54%	2.51%	It measures company’s ability to efficiently use its return on total assets. The company has increased its overall return on total assets.
Capital gearing ratio	Variable cost bearing capital / fixed cost bearing capital	2.424	2.185	The capital gearing ratio reflects company’s ability to evaluate whether company’s ability to pay interest on its earning. It has maintained stable capital gearing ratio in both years.
Administrative expenses ratio	Interest expenses / Operating profit X 100	-20.67%	-28.04%	This ratio shows that company is having good operating profit to pay off its interest expenses. It has decreased its administrative expenses by 8% in 2017 as compared to last year data. It is not good indicators of the business.

1 Ratio formula

RATIO	Formula	2016	2015
Current ratio	Current assets / Current liabilities	1.435	2.886
Acid Test Ratio	Current assets – (stock + prepaid expenses) / Current liabilities	1.332	2.803
Stock turnover ratio	Cost of goods sold / Average Inventory	(69.40)	(89.50)
Gross profit ratio	Gross profit / net sales X 100	62.19%	61.49%
Net profit ratio	Net profit / net sales X 100	12.02%	9.58%
Return on capital employed	Net profit/capital employed X100	3.81%	2.69%
Return on total assets	Net profit after tax / total assets X 100	3.54%	2.51%
Capital gearing ratio	Variable cost bearing capital / fixed cost bearing capital	2.424	2.185
Administrative expenses ratio	Interest expenses / Operating profit X 100	-20.67%	-28.04%

(Jacob, 2017).

Power point presentation of the financial performance of ATC Company

Slide-1

The return on capital employed and profitability of the company is highly based on the efficiency and net profit of the company. It has increased its ROC by 1% in 2017 which is the good indicator.

Factors that influence ATC’s profit on holiday trips

                                                

Slide-2

This ratio shows company’s efficiency to block its funds in its business. it is evaluated that stock turnover ratio has decreased to 69 points which is 19 points lower as compared to last year data.

                                                 

                                                    Slide-4

                                                

After analyzing all the details, liquidity and profitability of the company, it could be inferred that ATC company is having high profitability and good efficiency in its business. In the long run, the company will perform outstanding and will earn good amount of profit.

Task-4

1.There are several bodies which influence the regional bodies and tours and travel organizations.

Regional development funds- This body assist tours and travel operators to raise fund from the particular economy.

Exchange commission- It assists in making the foreign transaction easy and smooth.

Foreign exchange commission- This body helps other organizations to make easy business transactions. It saves tours and travel organizations from all the negative business activities.

There are several supporting tourism acts which is used to promote the tourism

• Setting new online mechanism
• Focus on the cross railway projects
• Development of historical destination

Types of funding available to ATC and other tours and travel business

• Equity funding- It is the process to issue shares publicly to raise funds from the market. In this funding, equity capital is issued to raise funds by offering ownership to outsiders.
• Debt funding- It is the lending process in which bonds and debentures are issued to the general public for the capital
• Government funding or intervention- It is the process to take funding support from the government to raise funds for the tours and travel business. It is the quite complicated process, requires compliance with the legal rules and regulations.
• Bank Loan and Overdraft:  It is the sort of facility given by the banks to tours and travel operators to finance the particular project. It includes loans and bank overdraft (Cook, Hsu, & Marqua, 2014).

With the changes in the business factors, tours and travel business has been gaining momentum throughout the time. In this report, the financial performance of the ATC tours and Travel Company has been analyzed. The ratio analysis tool, pricing strategy, and cost-volume profit analysis have been used to analysis the business performance of the company.

References:

Becker, E. (2016). Overbooked: The exploding business of travel and tourism. Simon and Schuster.

Bernhardt, S. M. (2017). Strategy Analysis and Business Plan for Red Barn Farm (Doctoral dissertation, The College of St. Scholastica).

Cook, R. A., Hsu, C. H., & Marqua, J. J. (2014). Tourism: the business of hospitality and travel. Boston, MA: Pearson.

Dhar, S. (2018). Finance, Credit, Investments–Economic Categories.

Garibaldi, R., Stone, M. J., Wolf, E., & Pozzi, A. (2017). Wine travel in the United States: A profile of wine travelers and wine tours. Tourism management perspectives, 23, 53-57.

Gretzel, U., Sigala, M., Xiang, Z., & Koo, C. (2015). Smart tourism: foundations and developments. Electronic Markets, 25(3), 179-188.

Gupta, S. K., & Rout, P. C. (2016). The Travel Trade Business in Garhwal Himalaya of India: Opportunities and Challenges. Opportunities and Challenges for Tourism and Hospitality in the BRIC Nations, 288.

Jacob, M. (2017). Entrepreneurships and Startup Programmes: Opportunities in Travel and Tourism. Atna Journal of Tourism Studies, 12(2), 51-65.

Long, Y., & Shi, P. (2017). Pricing strategies of the tour operator and online travel agency based on cooperation to achieve O2O model. Tourism Management, 62, 302-311.

Picazo, P., & Moreno-Gil, S. (2018). Tour operators’ marketing strategies and their impact on prices of sun and beach package holidays. Journal of Hospitality and Tourism Management, 35, 17-28.

Policy, F., Policy, I. P. A., Income, L., Policy, B. C., Tagging, P., & Safety, S. (2018). Financial Management System (FMS) User Access Control. Policy, 3, 29.

Robinson, P., Fallon, P., Cameron, H., & Crotts, J. C. (Eds.). (2016). Operations management in the travel industry. CABI.

Smilov, D. (2016). Introduction: Party Funding, Campaign Finance and Corruption in Eastern Europe Daniel Smilov. In Political Finance and Corruption in Eastern Europe (pp. 13-44). Routledge.

Vazquez, F., & Federico, P. (2015). Bank funding structures and risk: Evidence from the global financial crisis. Journal of banking & finance, 61, 1-14.

Xiang, Z., Magnini, V. P., & Fesenmaier, D. R. (2015). Information technology and consumer behavior in travel and tourism: Insights from travel planning using the internet. Journal of Retailing and Consumer Services, 22, 244-249.