Components of tour Costing and
preparation
of
Cost sheet
Costing each element of package tour is a painstaking work for a tour operator
while developing new package tour. Calculation of costs of package services
determines the price of package tours and it helps in garbing new market. Many
tour operators minimize the cost of preparing package tour that helps them
maximize profits. Reduction of unwanted costs and negotiation with primary
service providers for special rate largely help tour operators make profits and
pass on certain benefits to the customers or clients.
It is essential to include each element of cost that directly and indirectly
determine the final price tag of a particular package tour. Including
research and development costs as an indirect cost also determines the
price of package tour. Similarly, marketing and publicity are two important
costs that a tour operator includes them as indirect costs.
Besides understanding and including each element of cost, developing a
methodical cost sheet is an important work of a tour operator to bring
each implicit and explicit cost into the calculation of total costs of package
tour. Thus, this lesson will explain each component of package tour costing
along with the preparation of cost sheets.
fixed and Variable Costs
Fixed costs do not vary in the short run, but it varies in the long run. For
example, the cost remains to be the same no matter how many rooms are
occupied in particular day. It does 201 not matter it is 1 or 20 passengers. But
the costs would be the same. Variable costs change in short run as well as in the
long run also. It varies as per the variation of the sale of package tours. Table
presents the difference between fixed and variable costs pertaining to the
various activities.
Various Components of Cost
The cost for developing a package tour decides the final price of the package.
The sale of the package tour is a direct function of direct or indirect costs or
fixed and variable costs. The tour cost is explained as the sum total of cost
incurred to combine related and complementary services. For example, SOTC as
a tour wholesaler examines affordability of potential customers and various cost
components
Profit margin is added after due consideration of purchasing power of
buyers and costs involved in designing the package tours. Furthermore,
market demand determines the cost of tour packages and tour operators
make all possible ways to make the services arranged in a very negotiable
rate with the principal service providers. There is usual variation of doing
the calculation of costs from one tour operator to another. These are the
following variable costs apart from the fixed costs.
Cost for new produCt deVelopment
The cost is incurred for discovery of new destination and
development of new packages. It includes the cost for preparing
documents for planning. Tour operators incur the cost on their
familiarization tour. The development of new packages needs allocation of
cost.
Transfer Cost
International and domestic airfares, rail travel, and transfer and departure
tariffs are included in the cost component in case of the all-inclusive package tour.
Accommodation Cost
Accommodation cost is expected to be around 30 per cent of the total cost
that is decided after the negotiations accommodation companies.
Sightseeing Costs
Sightseeing cost includes the cost of guide, entry free, refreshments, coach,
etc. The calculation is done on per head basis.
Administrative and Transactional Cost
The cost of managing the preparation of itinerary and package tour
is incurred. This is an indirect cost or implicit cost. The cost includes
salary and incentives, insurance, financial or legal expenses and
recruitment and selection cost.
The Technical cost
The technical cost includes the acquisition of new software,
hardware, and computers for the reservation of air tickets and tour
packages.
Cost for Training and Development of Staff
The cost of training the staff is incurred form the revenue of the tour
company. Front line executives are given in-house training with the help of
external or internal trainers, whereas the managers are send for outhouse
training to learn the strategic business decisions.
Cost Marketing
The cost marketing is incurred from the budget for marketing. Marketing
cost includes advertising and sales promotion for diversification of the
package tour business.
Printing and Publicity Cost
The cost of printing tour brochures is incurred for designing and
printing multiple copies of the tour brochure on coloured glossy papers
highlighting the tour itinerary and other important features of package tours.
Cost for Bank Interest
The cost is also incurred to repay the rate of interest and principal for
borrowing loans from the banks.
Sun Cost
The cost is incurred for the depreciation of fixed assets in the long run due to
the obsolete nature of software and hardware, and electronic gadgets.
Miscellaneous Cost
This cost includes porterage charges at airports and railway stations, tips at
hotels or airports, entrance fees, insurance premiums, gifts, and welcome dinners.
Thus, while costing a product, the tour company should concentrate on the four
pivots namely- cost consciousness, cost measurement, cost responsibility and cost
improvement.
