LO 1: Understand sources of funding and income generation for business and services industries.

Unit 2 Finance in the Hospitality Industry (Assignment 1 of 2)

Finance

LO 1: Understand sources of funding and income generation for business and services industries.

LO 2:  Understand business in terms of the elements of cost 

LO1 Understand sources of funding and incomegeneration for business and services industries	1.1   Review sources of funding available to business and services industries
	1.2  Evaluate the contribution made by a range of methods of generating income within a given business and services operation

LO 2Understand business in terms of the elements of cost	2.1  Discuss elements of cost
	2.2  Evaluate methods of controlling stock and cash in a business and services environment

            

Daisy Limited is Small Medium Enterprise in Hong Kong specializing in supply of high quality product to travellers, selling and producing souvenirs, and other related hospitality services.   The company buys and sources most of the products and materials from specialist suppliers in Hong Kong and China.

 

The director is proud of the company’s achievement and performance and always mentions the following:

 

“We provide premium products and our business has grown rapidly over recent years.  We have good liquidity and profitability.  We also have good internal control and good credit management.  Even our suppliers give us short trade credit, our operation and cash also sufficient……”

 

Daisy operates standard costing system and analysis of variances is made every month.  The standard cost card for one of the products is as follow Table 1.1:

 

Table 1.1

 

Task

Understand sources of funding and income generation for business and services industries (LO 1)

Understand business in terms of the elements of cost (LO2)

 

You are great concerns on the income generation capability for Daisy and the sources of funding of the company. 

 

You plan to investigate the elements of costs in Daisy and you have got the following information about the elements of cost from production manager of producing souvenirs:

 

“Daisy began operations several years ago. The company purchased a building and, since only half of the space was needed for operations, the remaining space was rented to another firm for rental revenue of $300,000 per year.  The success of Daisy Company`s product has resulted in the company needing more space.  Daisy will not renew the lease in order to use the space to expand operations and meet demand after one month. 

        

The company`s product requires materials that cost $8 per unit.  The company employs a production supervisor whose salary is $30,000 per month. Production line workers are paid $33 per hour to manufacture and assemble the product. The company rents the equipment needed to produce the product at a rental cost of $ 37,000 per month. 

           

  The company spends $160,000 per year to market the product. Shipping costs for each unit are $17 per unit.” 

           

Required:

(a)  Review sources of funding available to business and services industries (LO1.1)

 

(b)  Evaluate the contribution made by a range of methods of generating income within a given business and services operation (LO1.2)

 

(c)  Discuss elements of cost involve from the above information.  You should classify the cost into direct materials, direct labour, indirect costs, fixed costs, variable costs, and opportunity costs.   (LO 2.1)

 

(d)  Evaluate methods of controlling stock and cash handling for Daisy, including storage, purchasing, security, reconciliation, and stock-taking.  (LO2.2)