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SUBJECT: ORGANISATION & CONTROL IN A TRAVEL

AGENCY:

UNIT 2:

BUDGETARY MANAGEMENT IN THE TOURIST ENTERPRISES.

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FEEDBACK

Let´s pay attention to the steps given to carry out an operational budget and a budgetary control process:

The operational budget consists of:

a) The Budget of Operating Revenues.

b) The Budget of Operating Costs / Expenses.

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a) The Budget of Operating Revenues: First document.

In order to prepare it, it is required to:

Multiply, individually, the quantity of the tourist services that are foreseen to be sold by the forecast price of every service.

In this sense, we can find three kinds of tourist services sold in a travel agency:

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“ Suppliers´ tourist services” like train tickets, flight tickets, wholesale package tours, and so on…

“Tailor-made tourist services” like package tours, excursions, and so on, that are produced by the travel agency.

“Service fee” that the travel agency charges its customers for expert advice and mediation services.

A budget of operating revenues by departments and a general one are required.

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b) The Budget of Operating Costs / Expenses: second document.

In order to fill in it, it´s required to calculate the following types of costs:

The acquisition costs (or costs of the sale) of tourist services that can be classified in:

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- Services sold on commission.- the travel agency acts as an agent between customers and suppliers, with the suppliers setting the rate / price.

Among them we can mention: National / international / intercontinental flight tickets (sporadically).

Rent-a-car services.

Reservations of accommodation in hotels, youth hostels, farm - houses, etc.

Wholesale package tours.

Reservations of restaurants.

Excursions.

Insurance policy.

In this case, the exercise must report the percentage (%) commission the travel agency gets on the sale in order to calculate the margin (1 - commission) and the formula below:

Costs of the sale = margin x revenues

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- Tailor-made services.- the travel agency acts in its own name, on the pricing and the sale of tourist products acquired at a confidential/net rate. Among them we can mention:

Tailor-made package tours.

Tailor-made excursions.

Customized trips.

In this case, the exercise must report well the % acquistion costs on the revenues (=margin), well the % profit margin on the revenues (similar to commission) in order to calculate the following formula:

Costs of the sale = margin x revenues.

NOTE: SERVICE FEE DOESN´T PRODUCE ANY ACQUISITION COST TO THE COMPANY.

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The remaining operating costs:

Expenses for staff.

Amortization.

Consumption of raw material / office material.

Advertising costs.

Wage and salary / expenses for staff.

External services: insurance policies, lawyers, supplies of phone, water, light, etc.

Financial costs: interest rates, etc.

OPERATIONAL BUDGET:

BUDGET OF OPERATING REVENUES = QUANTITY X PRICE

= TOTAL OPERATING REVENUES. (A)

BUDGET OF OPERATING COSTS =

COSTS OF ACQUISITION (B) :

SERVICES ON COMMISSION (B.1.)

+ CONFIDENTIAL RATE SERVICES (B.2.)

= TOTAL COSTS OF THE SALE (C = B1 + B2).

+ REMAINING OPERATING COSTS (D).

= TOTAL OPERATING COSTS (E = C + D).

TOTAL OPERATING RESULT BEFORE TAX ( F = A – E) : PROFIT OR LOSS.

NET OPERATING PROFIT (G = F – 33% TAX ON THE PROFIT “ONLY”).

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BUDGETARY CONTROL: DOCUMENTS 3, 4 AND 5.

It consists of comparing budgeted economic data (appearing in the documents 1 and 2) with actual economic data (appearing in the exercise).

So, budgetary control can only be carried out (llevado a cabo) in sale departments with actual data reported (sólo control presupuestario de departamentos de venta que arrojen datos económicos reales).

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From that comparison variances may come up, which have to be analysed with the help of a number of formula, and the appropriate measures will be taken:

Document 3: budgetary control on revenues.

Document 4: Budgetary control on costs of the sale.

In document 3, a positive variance is good for the company.

In document 4, a positive variance is bad for the company.

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ORIGEN OF VARIANCES AND FORMULA TO CALCULATE THEM.-

The formula being reported as follow, are the tools (herramientas) to figure out (explicar) the variances:

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Q = quantity.

P= price.

M= margin.

a= (como subíndice) actual.

b= (como subíndice) budgeted.

R= Revenues (€).

Here we are a list of acronyms used in the formula:

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a) On the revenues.-

On the quantity of tourist services that are forecast to be sold in the analysed department.- selling more or less tourist services than the budgeted ones.

The formula being used to calculate the variance is: (Qa – Qb) x Pb(Qa – Qb) x Pb.

A positive result means the corresponding department has sold more servicies than budgeted.

Quite the opposite (por el contrario), a negative result means the department has sold less services than budgeted.

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On the price.- we have to distinguish the budgeted price of a tourist product (e.g. A tailor made package holiday) from the actual price being charged to customers.

The formula being used to calculate the variance is: (Pa - P(Pa - Pbb) x Qa.) x Qa.A positive result means the corresponding department has sold the tourist services to a more expensive price than budgeted.

Quite the opposite (por el contrario), a negative result means the department has acquired less tourist services than budgeted, what is negative for the company.

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b) On the costs of the sales / acquisition costs).

On the quantity.- It´s referred to the quantity (units) of tourist services acquired from the suppliers. The formula to calculate the variance is as follows:

(Ra - Rb) x Mb.(Ra - Rb) x Mb.

A positive result means that the corresponding department has acquired more services than budgeted, what is positive for the company.

Quite the opposite (por el contrario), a negative result means the department has sold less services than budgeted, what is not good for the company.

On the price.- it´s referred to the rate (tarifa) the travel agency has to pay for acquiring the tourist services from the suppliers.

The formula to calculate the variance is as follows:

(Ma - Mb) x Ra.(Ma - Mb) x Ra.A positive result means that the corresponding department has acquired the tourist services to a more expensive rate than budgeted, what is negative for the company.

Quite the opposite (por el contrario), a negative result means the department has acquired the tourist services to a cheaper rate than budgeted, what is positive for the company.

c) On the remaining operating costs.-

The formula being used to calculate the variance is as follow:

Actual remaining operating costs – budgeted remaining operating costs.

A positive result means that the corresponding department has obtained higher remaining operating costs than budgeted, what is negative for the company.

Quite the opposite (por el contrario), a negative result means that the corresponding department has obtained lower remaining operating costs than budgeted, what is positive for the company.

Document 5: budgetary control on the result.

It is the last document of the process.

It consists of comparing the actual results (before tax and net profit) with the budgeted ones of the corresponding department analysed.

In order to fill it in, the economic data in the other previous four documents are required.

Good luck for your exam!