Managing finance in hospitality

Student:Anca Terezia Oancea

Id:21748
Submited to Mr.Desh Sharma

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 Table of Contents
Introduction......................................................................................................................................3

Task 2...............................................................................................................................................3

2.1................................................................................................................................................3

2.2................................................................................................................................................5

Task 3...............................................................................................................................................6

3.3 Budgetary control and variance analysis...............................................................................6

3.4................................................................................................................................................7

References........................................................................................................................................9

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Introduction
Hospitality industry is achieving significant growth in recent past making it one of the
most successful industry. Managing financial aspects of hospitality sector is a crucial element
due to involvement of high investment. The revenue of service sector is completely dependent on
its capability to serve the large consume base. It is essential for hospitality unit to charge an
adequate price for all of its products and services (Hirsch, 2000). Financial management is an
essential element of every organization since operations are mainly carried for the purpose of
earning high profits. The report herewith provides an in-depth understanding of various financial
aspects related to hospitality sector.

Task 2
2.1
The range of costs is incurred by organization to conduct business operations. It is
through analysis of limited spending that business unit is able to achieve sufficient profits. The
costs incurred on the part of the organization includes following elements.
Material: The raw materials and other items used for the purpose of manufacturing are
regarded as expense on material. The business unit needs to incur some amount of expenses on
materials purchased to support production process. The materials that are used directly in
production process are regarded as direct material. However, the materials that are indirectly
used in production process are considered to be indirect material. The business unit should
consider the expenditure on materials for the purpose of costing.
Labor: The labor involved in manufacturing process is also considered to be direct and
indirect. The labor that is directly involved into manufacturing process is regarded as direct
labor. On other hand, the labor that assumes responsibility of administration and so on should be
considered as indirect labor.
Expenses: Other miscellaneous expenses such as transportation charges, utilities and so
on are also accounted for as cost of operations. The factory and other expenses related to
manufacturing are considered as direct expenses. On other hand, office, administrative, selling
and distribution expenses are considered as indirect expense.
Various kinds of costs incurred are discussed underneath.

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 Direct costs: The costs are directly linked or connected to production of goods and
services. In order to control cost all activities should be continuously monitored and efforts
should be involved to achieve targeted figures as per the budget (Mohamed and Lashine, 2003).
Indirect costs: The costs are incurred on activities that support basic business operations.
Management mostly practices the approach to avoid these costs because of its invisible nature. It
is the responsibility of managementto assess all indirect costs and control them efficiently.
Variable costs: The costs that are incurred in correspondence to production of the
organization. It increases with increase in production and decreases with decrease in production.
The efficient control of variable costs is necessary to make products available at reasonable
price.
Fixed costs: It is the fixed amount of production cost incurred by business unit. It is
through appropriate estimation of fixed costs that organization is able to take benefit of
economies of scale. The fixed costs are incurred irrespective of any level of production.
Selling price: The selling price is to be fixed in the manner that the organization will be
able to achieve competitive edge and earn sufficient profits. The price should meet all business
expenditures and results in adequate amount of profits (Deakins, Gallowayand Morrison, 2002).
Gross profit percentage: It is the profit margin earned on revenue by the organization.
The business unit should ensure sufficient gross profit margins for long term profitability. The
same is calculated for Marks and Spencer with help of formulas mentioned below.
Gross Profit
Gross profit ratio= ∗100
Net Sales
Operating Profit
Operating profit r atio= ∗100
Net sales
Ratio for marks and Spencer for 2013:
838.22
Operating profit ratio= ∗100
9382.37
Operating profit ratio=8.93 %
The ratio calculated above suggests that organization is earning adequate amount of
operating profits to support its activities.

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2.2
There are various methods through which costs within an enterprise can be controlled
efficiently. The methodologies and models available are discussed in detail below for controlling
of costs and expenditure within business unit.
Economic order quantity: The technique emphasizes on estimation of level of inventory
that is economic in nature and same should be ordered. The business unit should order inventory
that is required to support business activities.
Re-order quantity: The business unit should calculate the level at which order should be
made again so as to conduct business operations (Theekeand Mitchell, 2008). The technique says
business unit should re-order at level that is adequate and helps in fast movement of goods.
Just-in -time: It is technique that emphasizes on real time-monitoring and thereby
controlling costs of production. It is through monitoring that extra costs incurred will be
estimated. The variances can be eliminated by way of adopting strict control mechanism.
LIFO (Last-in-first-out): It is the inventory management technique that emphasizes on
accounting for inventory that comes at last should be accounted for the first. It is assumed that
new inventory is quickly sold in market. Therefore, accounting should be done in similar manner
for the purpose of accuracy as per LIFO method.
FIFO (First-in-first-out): The technique of FIFO (First-in-first-out) emphasizes on
accounting for inventory that has entered first. This implies the inventory that is purchased
earlier should be accounted for first. The methodology assumes that inventory moves in a
sequence of their arrival within business premise.
Cash controlling methods: The cash inflow within business unit should be maintained so
as to ensure sufficient liquidity. It is through continuous monitoring that cash inflow and outflow
can be judged. Moreover, appropriate actions can be taken so as to conduct business operations
with efficiency.
It is necessary for business unit to control all kinds of operating and non-operating costs
involved in production of goods and services. The strict control mechanism will results in cost
reduction and thereby generation of significant amount of profits. The business unit can achieve
sufficient profitability through management of inventory and cost control mechanism. It is
essential that inventory is moved for sufficient number of times so as to have prompt collection

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of cash (Hildreth, 2004). The business unit with lower operating cycle tends to have earn profits
and achieve high growth.
Task 3
3.3 Budgetary control and variance analysis
The budgetary control is a tool available with organizations to achieve specific targets in
duration or time frame set. Budgets provide a framework that assists business unit to conduct its
operations. It appropriately allocates resources to each of the tasks involved and sets benchmark
for sales and other incomes.
Budgetary control is a method that emphasizes on achieving all the budgeted figures
forecasted. An appropriate control mechanism is necessary to make optimum utilization of
resources. It is through real time monitoring process that management can judge business
efficiency in meeting budgetary targets (Wildavsky, 2006). It also assists in identifying variances
and loopholes into the system. The variances once identified can be eliminated through real time
measures taken on the part of management.
Purpose of budgetary control
The budgetary control is considered to be highly valuable in meeting up targets and
deadlines of the business unit. The organization is able to achieve its long-term and short-term
objectives the budgetary control. The preparation of budgets and meeting of targets sets helps the
business unit to conduct operations with efficiency. Moreover, it results in proper allocation of
resources. The budgetary control is said to serve the purpose of optimum utilization of resources
and achieving proficiency in business operations.
Process of budgetary control
The budgetary control is considered to be sequential procedure for the purpose of
implementation in organization. The steps involved in budgetary control mechanism are
described below.
Identify variances: The variances into business operations should be identified so as to
take corrective measures. It is though mapping of actual figures with that of targeted and
budgeted figures, the organization is able to identify variances or loopholes into system.
Analyze and investigate variance: The reason or variances should be analyzed so as to
take adequate corrective measures. The organization is able to adopted appropriate strategy if
reasons for variances are identified.

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 Corrective actions: Finally, the business unit should plan and implement corrective
measures for the purpose of achieving targets set. The business strategy should be implemented
at accurate time for the purpose of achieving long-term success.
3.4
In case of Yurl, a cutlery manufacturer that produces spoon; the business unit is unable to
achieve budgeted figures.The business revenue is expected to reach level of £100000; however
organization is able to earn revenue of £75000. Moreover, amount spent on variable cost such as
materials and direct labor has also crossed the level of anticipated amounts. The business unit
therefore is incurring high cost of production and earning lesser revenue. The variance identified
can be eliminated by way of adopting appropriate mechanism for controlling cost. The business
unit has not strictly abided by budgeted figures. This in turn leads to variances in cost incurred at
various levels. The organization should therefore adopt strict control mechanism so as to
appropriately allocate resources. The continuous monitoring results in identifying loopholes and
strict control mechanism results in achieving targets as per budgets. In addition the business unit
should also try to increase its revenue so as to achieve adequate amount of growth.

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References
Cafferky, M., 2010.Breakeven Analysis.Business Expert Press.

Dlabay, L. and Burrow, J., 2007. Business Finance.Business Finance - Les Dlabay, James
Burrow - Google Books.

Grahl, J., 2009. Global Finance and Social Europe.Edward Elgar Publishing.

Henderson, R.F., 2012. Studies in company finance: a symposium on the economic analysis and
interpretation of British company accounts. CUP Archive.

Hildreth, W. B., 2004. Financial Management Theory In The Public Sector. Greenwood
Publishing Group

Hirsch, L.M.,  2000.Advanced Management Accounting.Cengage Learning EMEA.

Housing Finance Mechanisms in India, 2008.UN-HABITAT.

Lampe, K. and Hofmann, E.,  2013. Financial statement analysis of logistics service providers:
ways of enhancing performance. International Journal of Physical Distribution &
Logistics Management.43(4).pp.321-342.

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