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Travel and tourism industry has contributed a lot to the world's economy in terms of high contribution in GDP. The application of financial management is seen to be crucial within the business environment in determining cost and taking pricing decisions. This unit is focused towards the case of Merlin Entertainments, a leading entertainment company of United Kingdom. As per the given information, company operates around 110 attractions in 23 countries across four continents (Merlin Entertainments, 2016). The present report explains about the importance of costs and volume in financial management of travel and tourism businesses as well as the pricing methods that are used in this sector. However, the next section of study represents the different types of management accounting and the use of management accounting information as a decision making tool in travel and tourism businesses. Factors that are influencing the profit of tourism entrepreneurs specially to Merlin Entertainments Plc are also explained. In addition, case study of The Restaurant Group plc, a leading restaurant company is taken into consideration for interpreting financial accounts to assist decision making in travel and tourism businesses. At last, final section represents the sources and distribution of funding for public and non-public tourism development.

Task 1

1.1 Importance of costs and volume in financial management of travel and tourism businesses using Merlin Entertainments Plc

In respect with the given case scenario, Merlin Entertainments Plc is a leading entertainment company which aims at becoming a worldwide leader in branded, location-based, family entertainment from which it creates a strategy to attain high growth, high return and a family entertainment company (Bhowmik and Saha, 2013).

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Cost concept

Before explaining the concept of cost and volume, this is important to identify various kinds of costs as it is helpful in financial management of the report. Various types of costs are explained in below:

Direct cost: Cost that is significantly associated with the production is called as direct cost. Direct cost of production process include material, labor as well as many other direct expenditures. Direct cost can be in the form of human resources and materials. These costs are mandatory to be bear at the time of manufacturing process (Adams, 2006).

Indirect cost: The cost which is not directly linked to the production process but it indirectly links with the manufacturing unit is significantly known as indirect costs. Several range of indirect cost are administration, personnel as well as security costs. In other words, factory cost bear by business is known as indirect cost.

Fixed cost: In respect with the manufacturing unit, fixed cost is one which remains same at any level of production. In other words, cost which does not change with the production level is called as fixed cost. The fixed cost is going to be incurred at the production of single unit.

Variable cost: Another form of cost is variable which changes as per the level of production. This cost has a changing nature as per the production volume (Halabi and Carroll, 2015). Dependent cost is said to be the variable cost. For an example: organization produces 100 units so it bears less cost, on the other hand, at the production of 1000 unit it bears increased cost.

Such kind of cost is said to be variable cost and has a relevant aspect in manufacturing industry. Examples of variable cost are advertising, insurance and office supplies.

Allocation and appropriation of costs:

Main aim behind the allocation of cost is to identify, aggregate and access cost incurred during manufacturing as per the objectives of costs. However, to calculate actual cost per unit, this is too important to divide the cost within all the departments. In order to allocate cost, it is the foremost important to take pricing decisions. In respect with the mentioned company, major task is of dividing cost into various activities as per the requirements so that process of pricing decision can become easier. For a service industry like as Tourism, It becomes difficult to set price as per the cost occurred from different activities. The mentioned company is facing lot of issues including more competition at the time of offering services to the customers of UK in which prices of offering has become a foremost issue for the company. Allocation of cost is the major concept so as to decide the actual pricing of products by assessing cost per unit (Hu, Tian and Zhu, 2016). Within service industry, appropriation of cost is the actual allocation of cost and assessment of cost per unit. However, it is easier to understand costing concept so that decision over reducing expenses can be taken. However, this is all the round, mandatory to use different costing methods including absorption costing, marginal costing, activity based costing and so on. With the help of such methods, organization can allocate cost to each activity in the most appropriate manner and these arealso helpful in accessing cost per unit as well as making appropriate pricing decision.

Volume concept

Volume, in terms of manufacturing unit is refereed as the level and units of production that are produced in a specific time period. There are various concepts that are associated with the volume of production such as break even analysis, economies of scale and dis economies of scale. These all the concepts are discussed here under:

Break even analysis

Break even analysis concept is used to determine the volume of production at which company will gain the situation of no profit and no loss (IMAM and Spence, 2016). This method is considered as the one among the best methods for calculating the level of sales over net income. In addition, this method is considered to be the best for attaining cost efficiency. This is a point of production at which net revenue equals to the total cost. A hypothetical example is given in respect with explaining Breakeven point concept in below.

Price per Unit $10
Variable Cost per Unit $5

Total Fixed Cost $10,000
We have,
p = $10
v = $5, and
FC = $10,000
here , is a alternative formula for assessing breakeven point (sales units)

Breakeven Point in Sales Units (x)
= 10,000 ÷ (10 − 5)
= 10,000 ÷ 5
= 2000 units
BEP in Sales Dollars = $10 × 2000 = $20000

This concept is the most important for Merlin Entertainments Plc for assessing the level of sales so as to cover fixed and variable cost. By making the use of such method, business entity can manage expenses as well as can find out the ways to increase sales. In accordance with the results of Breakeven point method, decision of production level can be changed which will be fruitful in generating higher sales as well as profit while making effective pricing decision.

Economies of scale

The cost advantage of manufacturing units are known as economics of scale which can be attained by reducing the cost of production and increasing profits. Within the tourism industry, the economies of scale can be achieved by increasing level of service hence, reducing cost. In other words the economies of scale represents the relationship between quality production and cost of production (Shim and, 2008). In respect with the mentioned company, economies of scale is all about increasing production volume and providing benefits through reduction in cost.

This is to bring into notice, when company achieves economies to scale, it become important to separate the cost among the large number of units. At the same time, over a larger number of goods it reduced the burden from the organization. Economies of scales help in decreasing the variable cost per unit and increasing operational efficiency and synergies. While increasing the production level company can attain economies of scale level and can attract more profits for the organization.

Dis-economies of scale

From a in-depth indication, it has been noticed that in a long run economics of scale can not be achieved however, while taking a huge initiatives the company has to make various initiatives (Dlabay and Burrow, 2007). The marginal cost can be attained art the time increasing the cost of production. There can be some reasons for achieving dis economies of scale that are explained in the following points :

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1.2 Pricing methods used in the travel and tourism sector using Merlin Entertainments

Pricing decisions are the most crucial part for any industry as it determines the profit level. However, to make a pricing decision is the most crucial aspect of an organization for which it uses various pricing methods. The explanation of such pricing methods are explained below along with practical examples:

Discounted pricing

Discounted pricing is an important pricing method that can be used by the mentioned company so as to increase the number of customers (McLaney, 2009). The company provides discounts on the actual market prices so as to attract the customers and creating awareness among large number of visitors. Merlin Entertainments can offer services at lower prices in off seasons so that minimum level of profits can be attained. He use of such pricing method allows management to create a distinct image in marketplace.

Cost plus pricing

The mentioned method is used for setting prices of products as services in accordance with earning good amount of additional profits over the cost. Here is the example for cost plus pricing calculation:

Calculation of cos per unit

Table 1 Cost per unit

Material in production


labor charges


Total cost


No. of unit


Cost per unit 30000/500


Methods for calculating prices

30% mark up value

Table 2 Pricing

Total Cost


Profit percentage(30%OnCost)


Sales price


Sales value Per Unit


Profit earned in this strategy


Return on capital employed

Table 3 Profit

Capital employed


Rate of return




Table 4 Pricing



profit (Return on capital employed)


Sales price


Sales value Per Unit


Profit earned in this strategy


However, the cost as per cost plus pricing is calculated to be £ 80 so company can earn good profits at lower cost.

Market-led pricing- Market led pricing is an another method to calculate pricing and delivering good quality of services at reasonable prices (Siano and, 2010). The market led prices is also known as competition based prices in which company focuses on providing effective discounts to customers. In this methods, the prices are set while evaluating the prices of similar products available in the market. However, on the basis of product status in terms of features in competitive scenario, the company may set prices higher or lower than the competitor pricing.

Value adding pricing method

Value adding prices methods is a major concept of pricing that is considered as important so the company can deliver good quality of services to large number of visitors. The prices of products and services are to be included in respect with the value added features of a product and services (Jonsson, 2008). However, the cost of products are maximised in adding addition features which are further covered through increasing final prices. Hence, with the help of such pricing methods the company increases the value of products.

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1.3 Factors influencing profit for travel and tourism businesses using Merlin Entertainments Plc

Large numbers of factors are present which influences profit of travel and tourism firm like Merlin Entertainment Plc. Such factors are as follows which business must consider with the motive to enhance its profitability level:

Therefore, in this way these are some of the key factors which may influence profitability level of the business and by considering them it is possible for company to deal with adverse situation such as lower profits etc.

Task 2

2.1 Different types of management accounting information that could be used in travel and tourism businesses using Merlin Entertainments Plc.

Management accounting has significant presence in today's corporate scenario. The management accounting includes various concepts such as budgets, variances as well as allocating cost. The adoption of appropriate accounting method is important so as to attain the business objectives (Cohen and Kaimenaki, 2011). The mentioned entertainment company is going to take help of management accounting for satisfying the needs and wants of stakeholder of business. This unit of accounting methods also helps in planning, formulating strategies and adopting strict control of the company's operations. There can be various sources of information that assist company in explaining the implications of management accounting. The information sources are presented hereunder :

Financial statements: Financial statements are also known as financial reports that pertains the financial performance of a company for a specified pried of time (Bhowmik and Saha, 2013). However, it also include the information such as profitability, stability and liquidity position. With the help of various financial statements including balance sheets, income statement and cash flow statement. The companies are able to judge efficiency of business operations with the help of such reports. In addition the position of company can be ascertained with the help of such statements and these statements are important for satisfying information needs of stakeholders.

Cost allocation reports: The cost allocation report is important to identify the various cost during the business affairs and the a,location of such cost. This helps in identifying the utilization of resources as well as proper allocation of funds to each activity. In addition to that the organization has to focus on cost allocation of reports so that effective utilization of resources can be made (Pike & Neale, 2003). With the help of cost allocation report that company can find the information which is in relation to various costs that are involved in operations. Hence, the reports are highly valuable in satisfying the needs of stakeholders.

Budgets: For the purpose of setting benchmarks and targets as well as to identify the feasibility of set targets, the tourism entrepreneurs use various tools of management accounting. Budget are the financial plans that are prepared by the company in order to attain desired financial goals of company (Adams, 2006). The budgeted figures are helpful in creating targets and adopting strict control for attaining the budgeted figures of company. In addition to that budget is a tool of munitioning the financial performance as compared to previous decided plans as variance analysis. Hence, It could be said that with the help of budget the mentioned company can design future plans or managing financial resources.

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2.2 Use of management accounting information as a decision-making tool for Merlin Entertainments Plc

The use of management accounting information helps the business entities in taking decisions pertaining to business. The major aim of Merlin Entertainments to decide provide the quality services to the customers as well as to attain good profits. The management accounting information is helpful for making decision in regard to the development of new products as well as expansion of business (Mistry, Sharma and Low, 2014). The company can also take the decisions for reducing cost of production while making use of such information contains in management accounting tools. The information included in budgets is helpful in making decisions over the future courses of actions and ways to cut down the variance in actual and budgeted figures.

Further, the company can allocate financial resources that surely facilitates a effective control on expenses. Furthermore ,financial and accounting information is helpful in making effective investment decisions. On the basis of management accounting information and availability of funds the company can decide over investing funds in new project as well as making investment for growth and expansion decision. The cost analysis of business can be done on the basis of such information and the company can take decisions for selling and purchasing. The major decision in respect with prices of services are taken (Halabi and Carroll, 2015). The preparation of budgets can be made on the basis of financial information so as to make future plans and strategies.

Task 3

3.1 Financial accounts of The Restaurant Group (TRG) Plc for the year ended 28 December 2014 showing at least two years performance





Profitability ratios


Gross profit




Operating profit




Net profit




Net Sales




Gross Profit Ratio

(Gross Profit/Net Sales)*100



Operating Profit Ratio

(Operating Profit/Net Sales)*100



Net Profit Ratio

(Net Profit/Net Sales)*100



Liquidity ratios


Current Assets




Current Liabilities




Closing Stock




Current Ratio

Current Assets/current Liabilities



Quick Ratio

(Cu. Assets-Cl. Stock)/Cu. Liabilities



Efficiency Ratios


Net Sales




Total Assets




Total Assets Turnover Ratio

Net Sales/Total Assets



Cost of goods sold








Inventory Turnover ratio




Gearing ratios










Debt Equity Ratio




The financial information is excreted from the annual reports of annual report of TRG The restaurant group Plc. From the ratio analysis, It can be seen that the gross profits of company has been increased in the years 2013 as compared to previous years, however, operating ratio is decreased. The gross profits and net profits of company have been increased (The Restaurant Group plc, 2014). In respect with the liquidity position of company, it can be said that quick ratio is decreased indicating that the company has loss the ability to pay short term debts ion cash. In addition to that debt equity ratio decreased in previous years. In terms of efficiency of business, total Assets Turnover Ratio is decreased however, Inventory Turnover ratio is significantly improved (Merlin Entertainments, 2016).


4.1 Sources and distribution of funding

Various effective sources are present which business can undertake with the motive to develop heritage site which has been chosen as one of the capital project. Department of culture is regarded as one of the most effective source where business can take financial support from this department. Further, main role of department of culture is to provide funds to company if they are investing funds in any cultural project. This source is quite beneficial for business and large amount of funds can be obtained easily. Regional development fund is also one of the most appropriate source where regulatory authorities provides fund to the firm if they are undertaking any capital project through which development of region is possible (Gandhi, and Shankar, R., 2016). So, this source can also provide large amount of support to business where it becomes easy to implement the capital project in appropriate manner and in turn is favourable for the business in every possible manner. Apart from this, non governmental bodies are also present in the nation who provide financial support to business when they undertaken any project which is for the development of nation and boosts economy. Generally people living in the society are highly attracted towards the heritage sites as they are totally unique and this provides them remarkable experience. Further, government and other type of bodies also supports firm to undertake projects such as development of heritage sites etc. This can be beneficial for business and response from target market can be gained easily (Rahadi and, 2015).

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In the above report, the importance of costs and volume in financial management of travel and tourism businesses for Merlin Entertainments Plc is explained. The management accounting information is helpful for making decision such development of new products, investments for expansion, cost benefits analysis and so on. It was found that, the budgeting process helps in development of financial plan as with the helps of budgets the company can find out inflow and outflow of cash for a future time of span. The financial performance of company is improved from previous years. The sources and distribution of funding are helpful in supporting tourism firms to allocate more funds in promoting culture of the nation so that other nations can know about it easily.


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