Preface The functions of business divide into several areas and the general focus of this book is on one of the most important although least understood of these—DISTRIBUTION. The particular focus is on reviewing current practice in distribution costing and on attempting to push the frontiers back a little by suggesting some new approaches to overcome previously defined shortcomings.
Managers are constantly making decisions that affect profit. One ofthe decision‐making areas which is crucial to all managers concernsprofit planning. Attempts to show how…
Managers are constantly making decisions that affect profit. One of the decision‐making areas which is crucial to all managers concerns profit planning. Attempts to show how cost‐volume‐profit (CVP) analysis, aided by the computer spreadsheet, can be applied to the practical profit planning situation in the hospitality industry. Paradoxically, CVP analysis is one of the most widely referred to techniques in managerial accounting, but all too often it is not used to its full potential in the operating environment. Aims at encouraging greater use of the CVP approach to hospitality profit planning.
The article presents the “cost‐volume profit analysis (CVP)” for the hotel industry.
This article presents the results of a project undertaken to increase the effectiveness of decision makingat the property level in the Europe, Middle East, Africa division…
This article presents the results of a project undertaken to increase the effectiveness of decision makingat the property level in the Europe, Middle East, Africa division of an international hotel chain. The objective of the project was to provide the basis for a more informed approach to routine financialplanning and control decisions of property management teams with the aim of enhancing operational profitability. The techniques used to underpin the framework are evaluated in relation to their practical application in the decision‐making process and the rationale and method of implementation of the management development programme is explained.The framework was approved by the company’s management board for implementation throughout the division and feedback from property management and assessment of financial results suggest the approach has made a significant contribution to profit improvement.
The apparent failure on the part of companies to evolve a satisfactory costing scheme for their physical distribution (PD) systems is now giving way before a sustained…
The apparent failure on the part of companies to evolve a satisfactory costing scheme for their physical distribution (PD) systems is now giving way before a sustained attempt to rationalise PD costs. The author reviews the legislative and economic changes which have led to a recognition of the need for change, and he suggests that the “Total Distribution” (TD) approach to a solution is the one to be explored. The distinctive nature of the different accounting schemes in use, and their informational requirements, are discussed. The complex nature of PD involves the use of both operational research and statistical techniques. In fact, the need for improved information for PD management is not yet being met, and this hampers decision‐making. The monograph looks at the shortfalls in financial accounting for PD, and at the complex and ambiguous relations between PD and the formal company financial statement. Finally, the profit‐analysis approach may be the answer, and this can be incorporated within the framework of a missions approach. The author concludes that, so far, neither orthodox accounting procedures nor experimental approaches have yet provided a complete answer for PD cost analysis.
Hotels tend to have a high level of fixed costs, which means that highlosses will result if revenue is significantly reduced below thebreak‐even point. Hence, the…
Hotels tend to have a high level of fixed costs, which means that high losses will result if revenue is significantly reduced below the break‐even point. Hence, the traditional cost‐volume‐profit (CVP) model, which is widely used within the hotel sector to determine break‐even analysis, is an important managerial tool. However, is the basic CVP model adequate, bearing in mind that certainty does not always exist during the decision‐making process? Examines the basic CVP model and describes how to include uncertainty during the decision‐making process. By way of illustration uses a hypothetical Welsh hotel, to show how to determine probability estimates for various desired profit levels. Also considers some of the other inherent operational difficulties of the basic CVP model.
It is generally believed that in order to maximise value for shareholders, companies should strive towards maximising MVA (and not necessarily their total market value). The best way to do so is to maximise the EVA, which reflects an organisation’s ability to earn returns above the cost of capital. The leverage available to companies that incur fixed costs and use borrowed capital with a fixed interest charge has been known and quantified by financial managers for some time. The popularisation of EVA and MVA has opened up new possibilities for investigating the leverage effect of fixed costs (operational leverage) and interest (financial leverage) in conjunction with EVA and MVA, and for determining what effect changes in sales would have through leverage, not only on profits, but also on EVA and MVA. Combining a variable costing approach with leverage analysis and value analysis opens up new opportunities to investigate the effect of certain decisions on the MVA and the share price of a company. A spreadsheet model is used to illustrate how financial managers can use the leverage effects of fixed costs and the (fixed) cost of capital to maximise profits and also to determine what impact changes in any variable like sales or costs will have on the wealth of shareholders.
The purpose of this chapter is to present the key issues and main aspects of financial management, which also constitute the main concerns of a prospective entrepreneur.
This chapter takes a perspective of the small business/prospective entrepreneur and analyses how the methods, tools and techniques of financial management can be helpful in operating the business venture. Literature review was conducted on main issues and aspects of financial management.
This chapter builds on extant bibliography to discuss the key issues and main methods of financial management. For any business, irrespective of size, to carry on its operations and achieve its objectives, financial resources are required, and such resources must be managed efficiently and effectively.
This study is explorative in nature because the discussion is mostly based on a literature review. It takes more entrepreneurial/practical than academic approach.
To contribute to the successful and sustainable operation of a tourism venture, this chapter outlines the key financial issues and presents in a practical way the main methods and techniques used when making operational and investment decisions.
This chapter attempts to equip a prospective entrepreneur with the background knowledge (main competencies), as well as the principal methods and techniques (skills) for managing the financial resources of a venture.
Management Accounting and Financial Modelling.
Undergraduate and post-graduated levels.
Aiman, the Area Manager of GEZ Berhad, realised the importance for petrol station operators to have an understanding of fundamental management accounting concepts such as cost behaviour and cost–volume–profit (CVP) analysis. He also believed that the petrol station operators should be proficient in using Microsoft Excel functionality and able to construct “intelligent” financial model with extended sensitivity analysis. Being a manager responsible for training the petrol station operators, Aiman would like to introduce the CVP concepts and spreadsheet model-building process to the petrol station operators, to aid them in planning and decision making. To construct the Excel spreadsheet model, Aiman sought the assistance of Rizal, a university lecturer in accounting, who in turn gathered the relevant operational and financial data from Baron Service Station, a typical petrol station under GEZ stable. The model should be flexible enough to allow the petrol station operator to anticipate, for example: What will happen to overall profitability of the petrol station if the fuel prices go up? What is the minimum volume of fuel that needed to be sold to break even? How much extra profit can be generated if credit card sale is reduced? and Is it viable to install an automated teller machines (ATM) kiosk and incurring administrative charges from bank to lure more customers to visit the petrol station? As the petrol station sells multiple products (petrol, diesel and convenience goods), the owner is also interested to know which product lines are the most and least profitable. Thus, the model should be able to generate segmented income statement with appropriate allocation of the common fixed costs to the each of the products.
Expected learning - outcomes
The case discussion is intended to achieve the following learning outcomes: students are able to prepare a financial model which include a segmented contribution income statement based on the information on product mix; students are able to calculate the break-even point and distinguish between fixed and variable costs; students are able to differentiate between traceable fixed costs and common fixed costs; students are able to build a financial model that is sufficiently flexible to allow various what if analysis to be performed; and students are able to use what if analysis tools in Excel such as Goal Seek and Data Tables.
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