Finance in the Hospitality Industry Assignment

Qualification - Pearson BTEC Level 4 HND Diploma in Business

Unit Number and Title - Unit 2 - Finance in the Hospitality Indusry

QFC Level - Level 4

Learning Outcome


Assessment criteria

In this assessment you will have the opportunity to

present evidence that shows you are able to

Task No.


Understand sources of funding and income generation for business and services industries


review sources of funding available to business and services industries



evaluate the contribution made by a range of methods of generating income within a given business and services environment



Understand business in terms of the elements of cost


discuss elements of cost, gross profit percentages and selling prices for products and services



evaluate methods of controlling stock and cash in a business and services



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.


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


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.


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

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:




From the balance sheet as at

31 March 2003

31 March 2002




Trade Debtors



Trade Creditors



Total Asset less ciuTent liabilities



Creditors Due after more than one year



Share Capital ( 25p share)



From the profit and loss account for the year ended

31 March 2003

31 March 2002




Cost f goods sold






Interest Payable



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.







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