FINANCE FOR TRAVEL AND TOURISM

(TCO 6) In an activity-based costing system, cost reduction is accomplished by identifying and eliminating:

P1- Describe the travel and tourism component industries and provide examples of domestic, inbound and outbound organisations within them.

Activity-based costing can be defined as the managers allocate costs depending on the quantity of resources a product or service consumed in the manufacture of goods and services. The activity based

Activity-based costing is a system of accounting that puts emphases on activities performed to produce products or services (Schneider, 2012). In this costing system every activity is assigned a cost (Schneider, 2012). The goal of activity-based costing is not to allot common costs to products but to measure and then price out all the resources used for activities that sustain the production and delivery of products and services to customers (Mazumder, 2007). Activity-based costing is a cost system that is useful in business because of the fact that it does account for the cost of the products, resources used to produce the product and delivery of the product.

Tour operators are mostly the one who design and plan a holidays ahead of time they forecast the holiday and plan them two years before they sell a holiday to Travel agencies. While Travel agencies is more likely on marketing they sell and they promote to make profit according to their negotiation between Tour operators and Travel agencies this will depends how much

The following is an analysis regarding if Competition Bikes Incorporated should change its traditional costing method to activity based costing (ABC). This consideration is being given because the organization is changing its sales strategy in the San Diego plant to produce 9 Titanium bikes for every 5 CarbonLite bikes, and there are indications that manufacturing will experience a 10% increase due to new environmental regulations.

Glaser Health Products manufactures medical items for the health care industry. Production involves machining, assembly and painting. Finished units are then packed and shipped. The financial controller is interested to introduce an activity-based costing (ABC) system to allocate (or distribute) indirect costs to products. Indirect costs, as distinct from direct costs, cannot be unambiguously linked to specific products. The controller would like to calculate product costs based on ABC for planning and control, not inventory valuation.

The first item at hand is what kind of detail does activity based costing provide that is different than traditional costing?

Activity-based costing (ABC) methodology is an instrument designed to provide accountants and managers with valuable costing information that will allow them to make sound strategic decisions. It is used as a secondary methodology rather than a replacement for the company’s primarily costing system. The ABC methodology identifies activities in an organization and for each activity it assigns a cost. The cost reflects the actual resource consumption by each activity that has been identified.

Overall Theme We will explore fundamental assumptions of cost functions and discuss the relationships between cost behaviour, cost estimation and cost prediction. The concept of cost driver analysis and its application to cost estimation and cost management will also be discussed. We will also describe how to estimate cost behaviour using managerial judgment, engineering methods and other quantitative techniques.

The company is in the midst of revaluating their business structure and is considering adding real adventure holiday package in the remote regions of the world. The company has realised declining revenues due to recession and is looking for opportunities to explore new markets. The problems currently impacting this company are, declining revenues, focus on luxury holidays package geared towards age group of 40-60, lack of digital marketing techniques, dated information system, and staff that is not receptive of technological changes.

3. Activity-based costing is commonly used with standard costing. Using more activity drivers increases the potential for managers to

Activity-based costing takes a different approach, so that the costing might not be at the route level, but based on other means of breaking the company's activities down. At FedEx, a good way of breaking down costs is by customer. For example, some customers are served by multiple couriers, but there is also the question of where the customer sends their packages to, and what type of packages they send. These are things that FedEx accounts for in its pricing scheme already. Packages that are larger cost more; packages that go farther cost more. But there is more that goes into servicing these accounts. For example, accounts have sales and service representatives. Typically, these have large territories, so the expectation is that most accounts will require little service beyond that which the courier provides. A rep might visit a medium-sized customer once a year, and a large customer 2-3 times per year. A station manager might deal occasionally with the largest customers in the area. A

Nowadays, we know that activity based costing system assigns overhead costs to products or services products that using a two-stage process, which focuses on activities. ABC is a relatively new and very important topic in managerial accounting. ABC allows us to find a way that we could determine the profitability of every product, profitability of every customer we serve, and the profitability of our process. Contents in brief, first that comparing potential advantages of ABC versus traditional costing methods. The

C. T. Horngren, A. Bhimani, S. M. Datar, G. Foster (2005), 'Activity-Based Costing', Management and Cost Accounting (Prentice Hall Europe), 345-363