Unit 2 Finance in the Hospitality Industry Assignment Brief

TASK ONE

1.1 The government in Hong Kong is considering opening a theme park. The project committee is currently looking at funding options. They could fund it by using tax payers money, borrow from the public or issue shares. Evaluate sources of funding available to finance this capital project. What factors would the committee consider before reaching the final decision on the source of finance
1.2 The committee has also been tasked to write a report on the possible ways of generating income from the theme park. You have been tasked to write up this report and evaluate the different sources of income that could possibly be generated from this theme park.

TASK TWO

2.1 Identify examples of direct costs, indirect costs, fixed costs and variable costs incurred by Hotel Icon and Upper House.
2.2 Upper House operates a souvenir shop which manufactures and sells puppets. It produces puppets in a small factory in China which could produce up to 55000 puppets per year. Puppets are sold for £8 each. During the previous year output was 40000 puppets with the following costs:

Per Puppet £ 
Direct Materials 3.00 
Direct Labour 1.10 
Variable Overheads 0.70 
Fixed costs ( for year)- production £65000
Selling £28000 

Required: 

• Calculate the break-even level of output for the previous year. 
• How much profit did the s souvenir shop make last year by selling puppets 
• How many more puppets would they have to sell to make a profit of £50000, if the selling price was unchanged? 
• Evaluate the limitations of cost-volume-profit analysis 

2.3 Firms in the Hospitality industry can follow different pricing strategies to achieve profit. Analyse the different pricing strategies that can be followed by Icon and Upper House, taking into account the conditions they are currently operating in. 
2.4 Evaluate how the management of the souvenir shop would control their stock and cash flow.

Task Three 

3.1 The restaurant at Icon has requested a supplier to quote the price for the supply of caviar. The supplier has prepared the following standard cost information for a batch of caviar. 

• Direct Materials 2kg at £13/per kg £26.00 
• Direct Labour 3.3 hours at £4/per hour £13.20 
• Actual results after the first month were recorded as follows; 
• Production 12000 batches 
• Materials- 26400 kg £336,600 
• Labour- 40200 hours £168840 

All of the materials were purchased and used during the period. 
Required: 

• Calculate the direct material price and usage variance. 
• Calculate the direct labour rate and efficiency variance. 
• Explain the possible reasons why these variances may have occurred. 

3.2 You have been recently appointed as a financial consultant at the Icon restaurant to assist non-finance managers. At a staff meeting you have been asked to explain the following; 

• The source and structure of the trial balance 
• Discuss the budgetary control process and how this process helps management decision making at Icon Hotel. 
• The usefulness of the business accounts and the significance of the notes to the accounts that may often be used in their annual accounting statements.

Task Four

Scenario
You have been recently appointed as the accountant in a city hotel similar to Icon. You have been asked to submit a report analysing the previous two years financial statement using ration analysis. The following data is provided:

4.1 Calculate the following ratios and analyse the performance of the hotel for the last two years:
Return on Capital Employed 
• Gross profit margin 
• Stock Turnover 
• Debtors Collection period ( Debtors Days) 
• Creditors payment period ( creditors days 
4.2 Suggest future management actions and strategies based on your analysis above.