Free Accounting Dissertations - The Much Higher Sales Price May Result In Much Larger Drop In Number Of
The much higher sales price may result in much larger drop in number of tourists in two lean quarters of Q1 and Q4. Normally lean seasons are same for all tourist companies and hence higher price hikes in those quarters would result in much sharp drop in number of packages sold. So we have adopted a constant percentage increase in prices across the four quarters as compared to keeping the absolute difference same at 2005 levels.
Another way to increase prices would be to increase more in quarters with higher demand for packages and increase less or even keep constant in the quarters with less demands, i.e., increase prices more in Q2 and Q3, and increase less or even keep constant in Q1 and Q4. But this increase will need a proper demand and supply analysis and how customers would react to different price increases. So given the circumstances and availability of data, use of same percentage hike in all quarter looks to be the best policy.
Danish Holidays should monitor the impact of price hike on the number of holidays booked. If price hike in Q1 and Q4 reduces some holiday bookings, the company will still make more contribution in q1 of 2006 as compared to 2005. At higher prices, per person contribution in 2006 is £40 more than in 2005’s contribution at £101.7. So only when Q1 bookings fall by about one-third, Q1 contribution in 2006 will be less than the contribution in 2005. Price impact monitoring in Q1 would allow Danish Holidays to make necessary changes in later quarters.
Appendix I Data used in preparation of profit and loss account for 2005
Q1
Q2
Q3
Q4
Annual
Number of holidays sold
1,200
1,800
4,700
2,200
9,900
Average price per holiday, £
301
451
391
241
Commission paid
5%
5%
5%
5%
Cost ferry crossing per person, £
51
71
91
51
Accommodation cost, DKr
1200
1631
2122
1440
DKr:£
10.6:1
10.6:1
10.6:1
10.6:1
Accommodation costs, £
113.2
153.9
200.2
135.8
Administration cost per holiday
£20
£20
£20
£20
Depreciation
£164,000
Staff salaries
£100,000
Sundry fixed costs
£808,000
Appendix II Per person per quarter contribution in 2005
£
Q1
Q2
Q3
Q4
Sales
301.0
451.0
391.0
241.0
Less variable costs
Commission paid to agents
15.1
22.6
19.6
12.1
286.0
428.5
371.5
229.0
Ferry crossings
51.0
71.0
91.0
51.0
235.0
357.5
280.5
178.0
Accommodation costs
113.2
154.0
200.2
135.8
121.7
203.5
80.3
42.1
Other administration costs
20.0
20.0
20.0
20.0
Contribution
£101.7
£183.5
£60.3
£22.
