Finance In The Hospitality Industry

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


Finance In The Hospitality IndustryThis unit will enable learners to develop a 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 an 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 analyze business performance by the application of ratios.

Learners will have opportunities to investigate control systems, income generation, and methods of measuring and analyzing 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 analyze 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; labor; 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, labor, overhead), profit variances (gross and net)

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

Sales profitability ratios: gross and net profit; Return On Capital Employed (ROCE) Liquidity ratios: current; the 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 categorization and contribution: fixed and variable costs; contribution calculation eg product/customers, cost/profit/volume relationship

Learning Outcomes And Assessment Criteria

Learning outcomesAssessment criteria for pass
On successful completion ofThe learner can:
this unit a learner will:
LO1 Understand sources of1.1review sources of funding available to business and
funding and incomeservices industries
generation for business and1.2evaluate the contribution made by a range of methods
services industries
of generating income within a given business and
services operation
LO2 Understand business in2.1discuss elements of cost, gross profit percentages and
terms of the elements ofselling prices for products and services
cost2.2evaluate methods of controlling stock and cash in a
business and services environment
LO3 Be able to evaluate business3.1assess the source and structure of the trial balance
accounts3.2evaluate business accounts, adjustments and notes
3.3discuss the process and purpose of budgetary control
3.4analyse variances from budgeted and actual figures,
offering suggestions for appropriate future management
LO4 Be able to analyse business4.1calculate and analyse all ratios to offer a consistent
performance by theinterpretation of historical business performance
application of ratios4.2recommend appropriate future management strategies
for a given business and services operation
LO5 Be able to apply the concept5.1categorise costs as fixed, variable and semi-variable for
of marginal costinga given scenario
5.2calculate contribution per product/customer and explain
the cost/profit/volume relationship for a given scenario
5.3justify short-term management decisions based on
profit/loss potentials and risk (break-even) calculations
for a given business and services operation



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 the delivery of the unit.

Maddox Smith

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