This work aims to contribute to the formation of an attitude and strategic thinking by applying the techniques of the equilibrium point to three tourist products offered by the AAVV SENDEROS, the purpose is to determine the number of pax and the amount of sales necessary from which the operation provides profits.
The relevance of the work is presented from the very conception of its application to AAVV offers, since from it two possible variants of obtaining the level of activity necessary to not obtain loss and from which profits are achieved in the business are derived.
The result achieved may constitute a methodology for those specialists who must tackle such endeavors. This justifies the execution of an investigation to know the main factors that influence the actions of the company. The work focuses on the Sales IV department, and the three main circuits that move the largest number of pax will be analyzed, those corresponding to the German market, the largest source of tourists for the company.
DEVELOPING
Taking into consideration the importance of this work for the International Sales Company, the following general objective was proposed to be developed:
Determine the level of invoicing necessary for the Sales Company
International (Sales department IV) that allows recording profits in operations.
As specific objectives, the following can be indicated:
| one. | Determination and analysis of fixed and variable costs. |
| two. | Equilibrium Point calculation and analysis. |
To comply with the general objective, the work has been structured in three sections: The first presents the theoretical foundation of the Balance Point technique, which will be used in determining the level of sale (and number of pax) from from which profits will be obtained. This technique is extremely important in financial planning, for its application the typology of the costs that make up its calculation is defined.
The second deals with the conception of the tourist product offered by the AAVV SENDEROS and within this a general characterization of it is made, describing the elements that comprise it, as well as a brief analysis of the demand for the product.
The third establishes the methodology for the application of the equilibrium point techniques to the products in question, and based on the results obtained, the conclusions and recommendations are provided.
- Breakeven. Fundamental theoretical aspects
The Equilibrium Point, also called the Neutral Point, Profitability Threshold, or Breakpoint, represents the economic moment in which there is an equilibrium between income and total costs, that is, when there is no loss and no it has begun to make a profit.
The break-even analysis is applicable to any of the divisions or units of the organization that have duly differentiated costs into fixed and variable.
The correct definition of what are the fixed costs and variable costs of the organization in question is an indispensable requirement for the calculation and application of this instrument. However, it is necessary to emphasize that in most organizations, the information is not structured in this way, which makes calculating the break-even point somewhat complex.
The costs of a company can be fixed and variable. The need for such a separation is that in this way, the management of the company can analyze its structural costs, that is, those that occur independently of the level of sale and those that depend entirely on its operations, and use this knowledge in the Decision-making process.
Variable Costs: These are those that depend on the volume of production or the level of services, that is, the higher the production or units produced, or the services provided, then the variable costs will also be higher.
If it is considered per unit, the variable cost does not change within a certain range, the production of goods and services cannot be increased to infinity and expect the unit variable to remain unchanged, it can increase as a greater number of units, as operations become complicated and costs increase.
Some examples of variable costs are: direct materials, direct labor, total expenses that generally vary if the volume of units or services produced and sold varies. The most significant for the company are operating expenses, customer compensation expenses, rate variation expenses and administrative expenses.
Fixed Cost: They are those linked to the characteristics of the project and do not depend on the volume of production or units produced, once the decision to produce a certain good or acquire an asset has been determined, they must necessarily be incurred. Some authors call them newspapers because they originate on the sole condition that time passes, in such a way that after a certain time they are incurred because the calendar requires it.
Obviously, it is very important to know the breakeven point, because if income is not obtained above it, there will be a loss and, to the extent that income is above it, there will be benefits.
The breakeven point can be expressed in physical units or in monetary units. In addition, it can be calculated both for the entire company, and for a specific service or product.
The formula is the following:
Sales - Fixed Costs - Variable Costs = 0 (breakeven point)
Variants for the determination of the Equilibrium Point Equation Method
Break-even Point = Net Sales - Total Variable Costs - Total Fixed Costs.
Contribution Margin Index Method
1−
This variant arises because in most organizations, they offer a variety of products and services, and therefore, the Balance Point is formulated in terms of value and not in physical units. For this, it is necessary to calculate the Contribution Margin Index, which is the quotient of the Total Variable Cost between the Net Sales. This index must be updated frequently, whenever there are important changes in these factors.
Graphic method
Main assumptions in the Break-even Analysis
- The fixed cost is the one that does not change in its total during a period, its impact becoming progressively smaller as the volume grows. Operating profit is equal to sales less variable costs and fixed costs. Sales are equal to quantity. by price Variable cost equals unit variable cost times quantity Total cost behavior has been determined reliably and linearly along the relevant scale Total costs can be divided into a fixed and a variable component relative to a factor related to economic activity. Total fixed costs remain constant throughout the relevant scale. Total variable costs are directly proportional to volume along the relevant scale. Sales price remains unchanged.The volume of activity is the only factor that affects the cost The behavior of total revenues and total costs is linear in relation to the units of service.There is no uncertainty regarding the data of costs, income and quantity of service provided.
The break-even analysis is applicable to any of the divisions or units of the organization that have duly differentiated costs. It is therefore essential to define what are the fixed costs and variable costs of the organization in question.
- SENDEROS Travel Agency
Within SENDEROS, the most important company, due to the volume of its operations and the activity it carries out, is International Sales, which in recent years has significantly increased its revenue volumes and with it its operation in general, which constitutes The object of study of this work, specifically the German market, which represents 40% of its income and its highest TTOO ThoCook is placed in second place in the ranking of European tour operators, starting with a leadership position in key markets such as Great Britain, Germany, France, Benelux and Scandinavia.
The management of the company is subdivided into departments with their corresponding markets.
Sales 1
Markets: Italy, Greece, United Kingdom, Eastern Europe, Canada.
Sales 2
Markets: France, Switzerland, Japan, China.
Sales 3
Markets: Spain, Portugal and Latin America.
Sales 4
Markets: Germany, Holland, Austria, Belgium.
Sales 5
Stay tourism and car rental.
Brief description of the activity carried out
The SENDEROS Travel Agency offers the possibility of enjoying with a unique scope and diversity, the tourist potential of Cuba. It opened a path through which it travels with all comfort, due to its professionalism and acceptance of a cordial and efficient style, making all the Cuban tourism product available to its clients, its mission is to provide, promote and market the tourist offer of each one of the fundamental tourist poles located in the national territory, with a comprehensive offer of optional products and services and packages, fundamentally oriented to the exploitation of the local attraction and infrastructure.
It also offers Representation and Assistance services throughout the country, prepares and coordinates all types of Tourist Circuit, guarantees accommodation reservations in hotels of different categories, variety of excursions from each of the tourist destinations and air tickets. To ensure each of the services, it has highly qualified tourist guides.
Services provided
Varied circuits and programs.
One of the main and most demanded offers that the company has is the organization of different circuits and programs, which include all the tourist centers of the country and which are grouped by language or countries. This is the main product of the company. The circuits are scheduled for a tour between 4 and 7 days, they include lodging, lunches in different non-hotel facilities, visits to museums, tobacco factories, trails and safaris, the most important are:
- All Cuba Varadero (represents 28% of total sales) Dear Cuba (represents 19% of total sales) West Cuba Varadero (represents 17% of total sales).
Sale of domestic air tickets.
Tickets to Cayo Largo, Cayo Coco, Holguín and Santiago de Cuba.
Car rental.
Rent of all types of cars in various modalities and with different providers.
Combined programs.
Various programs that combine accommodation and cars, driving Cuba, Cuba Free, in 7 days, in 14 days. In these programs the option is given to reserve the hotels in advance.
Tourism of stay or individual.
It is tourism that is organized independently by a tourist or small groups of tourists, who usually have a more or less long stay in a single hotel, although sometimes more hotels are combined with air or land transfer.
Transfer.
One of the major activities of the travel agency is given by the collective transfer service from the airports to the hotels in the city. This service is in high demand by customers due to the economic aspect that is the same for tourists, since it is collective, the service is also provided from the hotels in Havana City to the hotels in Varadero and vice versa.
All these services provided by our agency respond to quality standards and consumer protection laws, due to this and that the German market is a very demanding tourism, our entity has had to disburse certain amounts of euros annually for compensation to customers, product of claims made by them for the concept of poor quality of service.
Mission, Vision and Objectives of the Entity
Mission: We are a business organization of the Tourism System commercializing the national tourism product, specialized in receptive activity, multiplying the offers throughout the national territory and abroad; providing assistance and representation services to tour operators, individual or group tourists, professional organizer of conferences, optional activities, incentives, specialized tourism and other services, backed by the high professional level and high political culture of our executives and workers.
Vision: To consolidate ourselves as the leading Incoming Agency in the country, with a service of excellence, a quality mark, with the SENDEROS brand and with adequate economic efficiency that allows us to expand the range of clients and increase market shares, with a group of professionals who have an adequate level of knowledge and experience
Objectives of the Entity
- The professional organization of tourist trips to Cuba or other destinations and services for those tourists Act as a coordinator between producers or borrowers and clients or consumers, executing or providing services to tourists Carry out receptive services in ports and airports, to tour operators, individual or group tourists, to health tourism and other interested parties Specialized attention to VIP tourists (very important people) Offer of excursions, reservations (including transfer services, plane charter and others), as well as activities Optional Organization of events, conventions and required technical services Representation in the tourist destination.
Market Policies
Sale = Variable Costs + Fixed Costs + Profit
505 x = 342 x + 1612 + 0
505 X - 342 X = 1612
163 X = 1612
X = 1612/163
X = 10 pax
Therefore, the Balance Point is reached from 10 pax. There will be a loss if the circuit has less than 10 pax and you will get profit from 11 pax.
PE = (1612+ 0) / (505 - 342) = 1612/163
PE = 10 pax
Balance Sale Level = 10 pax * 505 cuc / pax = 5 050 cuc
Low season
| All Cuba Varadero x 7 days for 20 pa |
Circuit: x.
- Bus used with 30 seats with a total price of the route of 1554.00. Average operating expenses per circuit: 167.00cuc Selling price of the package per pax 505.00cuc.
Sale = Variable Costs + Fixed Costs + Profit
505X = 327X + 2001 + 0
505X - 327X = 2001
178X = 2001
Balance Sale Level = 12 pax * 505 cuc / pax = 6 060 cuc
Sale = Variable Costs + Fixed Costs + Profit
650 x = 382 x + 1423 + 0
650 X - 382 X = 1423
268 X = 1423
PE = (1423 + 0) / (650-382) = 1423/268
PE = 6
Balance Sale Level = 6 pax * 650 cuc / pax = 3 900 cuc
Data for economic analysis. Low season
Circuit: Querida Cuba Varadero x 7 days for 20pax.
- The bus used is 30 seats for a total cost of 1111.00 cuc. The sale price of the package is 435.00 cuc per pax.
Sale = Variable Costs + Fixed Costs + Profit
435X = 291X + 1551 + 0
435X - 291X = 1551
144X = 1551
X = 1551/144
X = 11 pax
Balance Sale Level = 11 pax * 435 cuc / pax = 4 785 cuc
Sale = Variable Costs + Fixed Costs + Profit
370X = 153X + 1196 + 0
370X - 153.00 X = 1196.00
217X = 1196
- = 1196/217
X = 6 pax
Balance Sale Level = 6 pax * 370 cuc / pax = 2 220 cuc Low season
Circuit. West Cuba Varadero x 5 days for 20pax.
- Bus used with 30 seats for a total cost of 1184.00cuc Package sale price 304.00cuc per pax.
Sale = Variable Costs + Fixed Costs + Profit
304X = 144X + 1397 + 0
304X - 144.00 X = 1397.00
160X = 1397
- = 1397/160
Balance Sale Level = 9 pax * 304 cuc / pax = 2 736 cuc
In this circuit, the Balance Point is reached from pax9. There will be loss with a circuit of less than 9pax and utility from pax10.
PE = 1397.00 + 0 / 304.00 - 144.00
PE = 1397.00 / 160
PE = 9 pax
CONCLUSIONS
With the development of this work, the fundamental objective was fulfilled, that is, to determine if the tourism product designed by the International Sales Company is capable of providing the expected profits.
- The application of the equilibrium point technique allowed determining the level of operation necessary to obtain profits in each of the circuits studied.The work proposes a methodology for the calculation and application of the equilibrium point, taking into account the characteristics of the product tourism and its possible application to similar cases or other cases of non-hotel tourism products. The applied methodology allows the specific analysis of costs classified as fixed and variable.
RECOMMENDATIONS
- Systematize the application of the Balance Point technique, for the different seasons and circuits Apply the proposed methodology in calculating the balance point in other circuits and operations carried out by the Company Periodically update the indicators that make up the fixed costs and the variable costs Prepare specialists in the marketing and economic areas to be able to apply the methodology here designed to be used in similar studies.
Authors:
Professor Rigoberto Fernández Padilla Lic.
Graduate in Mathematics. Professor at the School of Higher Studies in Hospitality and Tourism, the Faculty of Tourism and the Faculty of Accounting and Finance at the University of Havana. Author of two books on economic issues. He has collaborated and written articles for magazines and scientific events. He has participated in the development of teaching support materials and provided theoretical and practical advice on economic issues in gastronomic facilities, retail stores and hotels. He has post-graduate education both in the country and abroad and participated in international events. He participated in the design of study plans and programs in economic specialties. (e-mail: [email protected])
Lic. Yunilda Martínez Fournier
Degree in Economics. Head of the Economic Department of the International Sales Company of CUBATUR. Diploma in Commercial Economic Management and a graduate in English for specialists in Economic Management.
Country: Cuba
Date: October 21, 2009
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