Finance In The Hospitality Industry

Finance In The Hospitality Industry

Unit Code : R/601/1789 QCF Level : 4  Credit Value : 15

Aim

This unit will enable learners to develop practical understanding of the accounting techniques used to control costs and profits, and to support managers in making effective short-term decisions.

Unit Abstract

Learners will gain understanding of the sources of funding and income generation for business and services industries. They will also understand business in terms of the elements of cost and how to analyse business performance by the application of ratios.

Learners will have opportunities to investigate control systems, income generation and methods of measuring and analysing performance.

On completion of the unit, learners will be able to evaluate business accounts and apply the concept of marginal costing.

Learners must ensure that their evidence relates to the hospitality industry.

Learning Outcomes

On successful completion of this unit a learner will:

• LO1 Understand sources of funding and income generation for business and services industries
• LO2 Understand business in terms of the elements of cost
• LO3 Be able to evaluate business accounts
• LO4 Be able to analyse business performance by the application of ratios
• LO5 Be able to apply the concept of marginal costing.

Unit Content

LO1 Understand sources of funding and income generation for business and services industries

Funding: sources eg retained profits, loans, banks, investors, small business schemes, franchise, hire purchase, sponsorship, lease schemes, creditors, debt factoring

Income generation: methods eg sales, commission, sub-letting, sponsorship, grants, tracking mechanisms

 LO2 Understand business in terms of the elements of cost

Elements of cost: sales; materials; consumables; labour; overheads; capital; gross and net profits; discount costing

Selling prices: product and service costing; formula to achieve a specific gross profit percentage; differential gross/net profit margins; marginal costing; effect of competition; freelance; commission; peak/off-peak trading

Control of stock and cash: methods eg storage, purchasing, cash, security, reconciliation, stock-taking

Taxation: income tax; Value Added Tax (VAT); corporation tax; schedules; rates; personal/capital allowances; post-tax profits, implications

LO3  Be able to evaluate business accounts

Trial balance: source; structure eg summary of accounts from sales, purchase and nominal ledgers

Final accounts: types eg sole trader, partnerships, limited company, trading account, profit and loss account, balance sheet, adjustments for depreciation, accruals, prepayments, bad debt provision; format eg vertical, double-entry, appropriation account; assets/liabilities eg capital, fixed, current, notes to accounts

Profit and cash budgets: purpose; types eg profit, cash flow, operating, master; variance analysis to include sales (volume and average spend), cost variances (raw material, labour, overhead), profit variances (gross and net)

 LO4 Be able to analyse business performance by the application of ratios

Sales profitability ratios: gross and net profit; Return On Capital Employed (ROCE) Liquidity ratios: current; acid test

Efficiency ratios: debtors and creditors payment periods; stock turnover Financial ratios: interest earned; gearing

LO5  Be able to apply the concept of marginal costing

Costs categorisation and contribution: fixed and variable costs; contribution calculation eg product/customers, cost/profit/volume relationship

Learning Outcomes And Assessment Criteria

	Learning outcomes		Assessment criteria for pass
	On successful completion of		The learner can:
	this unit a learner will:
	LO1 Understand sources of		1.1	review sources of funding available to business and
	funding and income			services industries
	generation for business and		1.2	evaluate the contribution made by a range of methods
	services industries
				of generating income within a given business and
				services operation
	LO2 Understand business in		2.1	discuss elements of cost, gross profit percentages and
	terms of the elements of			selling prices for products and services
	cost		2.2	evaluate methods of controlling stock and cash in a
				business and services environment
	LO3 Be able to evaluate business		3.1	assess the source and structure of the trial balance
	accounts		3.2	evaluate business accounts, adjustments and notes
			3.3	discuss the process and purpose of budgetary control
			3.4	analyse variances from budgeted and actual figures,
				offering suggestions for appropriate future management
				action
	LO4 Be able to analyse business		4.1	calculate and analyse all ratios to offer a consistent
	performance by the			interpretation of historical business performance
	application of ratios		4.2	recommend appropriate future management strategies
				for a given business and services operation
	LO5 Be able to apply the concept		5.1	categorise costs as fixed, variable and semi-variable for
	of marginal costing			a given scenario
			5.2	calculate contribution per product/customer and explain
				the cost/profit/volume relationship for a given scenario
			5.3	justify short-term management decisions based on
				profit/loss potentials and risk (break-even) calculations
				for a given business and services operation

Guidance

Links

This unit may be linked to other units, including:

Unit 7: The Developing Manager Unit 8: Marketing in Hospitality Unit 19: External Business Environment Unit 21: Small Business Enterprise.

Essential Requirements

Adequate access to computer and appropriate financial software is essential. When giving presentations, learners must also have access to the latest technological equipment and software.

Tutors must develop suitable banks of case study materials based on real situations for demonstration and practice by learners. These must be in the context of the hospitality industry and include examples from different aspects of the industry, such as the front office, food and beverage costs, service costs etc

Employer Engagement And Vocational Contexts

A visiting speaker, with some financial responsibility in the hospitality industry, will enhance delivery of the unit.