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Coastal Restaurant Pvt Ltd: Cost and Performance Management

Bachelor of Tourism and Hospitality Management

2018-SEM2-THH3113 Cost and Performance Management for Tourism and Hospitality

Group Case study Analysis:

Assessment of the assignment is based on the adequacy and accuracy of the submitted assignment. For all written work students must ensure that they submit their own original work. Any act of plagiarism will be severely penalised.

Case Study:

Coastal Restaurant Pty Ltd. is a restaurant established 1983 in Angelsea, Victoria? They are well known customer service, ambience and Rich premium continental dishes in their menu as they use only fresh catch from the sea daily. The owner Ricky Martin has successfully gained their BYO license from the local council on 1st July 2017 which his competitors don’t have. He is very concerned about his business after hearing this news, as he thinks that he might be getting a lot of customers dinning in his restaurant thus he wants to compare his budgeted income statement and see how they have performed in the basis of cost management. He wants to be proactive and decide for any costs that might be arising because of this new license. As a Revenue manager you are approached to evaluate factors affecting value perceptions in food services. Ricky is sure that you can help him to point out the cost drivers and evaluate management cost drivers that measure performance of the cost control and he would like to know where his business is.


1. The bank charges depend on the number of transactions that takes place in the restaurant 2. property insurance has increased as a case of inflation in price s 3. casual employees are employed more than the full-time employees 4. There are 9 permanent employees which include head chef and sous chef 5. Kitchen utensils are hired as per the catering orders they receive 6. This time management have chosen to advertise in the local papers as well irrespective of the social media advertisements 7. There was an unexpected equipment failure in the hotel during in the months of December that has increased the repair expenses (this was mainly because of poor record keeping for the equipment’s maintenance 8. The management has implemented some strict waste reduction measure as a result the waste removal charges have decreased 9. As other local restaurants as an initiative to cut down plastic usage have totally banned the packaged drinking water, thus providing bottled water to the customer for free which the management has also adopted thus seen an increase in the water usage

1. Cost Control: (10 Marks) Identify and evaluate cost control areas and recommend how they can control them in future by better cost management 

2. Cost Measurement Analysis: (10 Marks): Critical appraise and evaluate management cost drivers that measure performance of the cost control (Briefly explain recommendation for the business on which one of these are the basic reason for the costs fluctuations in their business and what can they do to minimize these costs)

3. PERFORMANCE ANALYSIS (VARIANCE): (10 Marks) Perform a variance analysis on the following report and discuss about the variances in performance when compared to their budget.

4. Recommendation (to handle the sales increase): (5 Marks) Recommend on how Ricky should handle his sales without compromising on cost in the future (no increasing in cost)

5. Presentation with no errors is awarded (5 marks)


Cost & Performance Management

Coastal Hotel (Assignment 3)


To gain more profit, it is very important to control all the variable expenses. In this case the cost control areas are: 

  • Bank Charges: In this case, there is a certain amount which bank charges 0.025c per transaction so for the large business we can speak to the bank to charge a fixed amount on the number of transactions occurring per day to reduce the cost.
  • Property Insurance: It is using to protect the business from any damages. In this case, the restaurant can change its insurance provider that is by getting a quote from different insurance companies and then compare the prices and the benefits they are providing and choose it wisely.
  • Casual employees: The only way to decrease this cost is by hiring more full-time employees or asking your casual employees to change their employment status into full time employees as the restaurant has gained the BYO from the local council.
  • Cleaning and cleaning products: To reduce this cost the restaurant can give contract to the cleaning companies in which a fixed amount will be paid to the cleaning company every week/fortnightly rather than hiring casual employees to clean the restaurant which will cost a lot of money.
  • Credit card commission: it depends on the number of the transactions occurs per day. To control credit card commission, we can talk to the bank and ask them to provide us a lump sum (a single payment made at a particular time) price for the specific number of the transactions.
  • Electricity/gas: The electricity bill has increased to 9%. So, to reduce this we can install the sensors, purchasing energy efficient appliances, switch off the lights when not in used and by installing solar panels in which a payment plan has made to the restaurant for the few years and at a fixed amount every month.
  • Advertising: This cost has increased in advertising but consequently increased the food sales in this restaurant. It might be paying more for the paid media, so they can use owned and earned media which will cost to nothing. 
  • Permanent full-time employee wages: It can be done by adjusting the current compensation plan, try to reduce over time and by reducing employee turnover as it costs more to lose an employee than hiring.
  • Repair and maintenance: To reduce this cost it is especially important to guide your employees in the right way to use the equipment such as vacuum, dish washer and other things to reduce this cost.
  • Superannuation for employees: The superannuation of the casual and the full-time employee are 9.5%. If a casual employee is working more than 40 hours, the restaurant is paying more superannuation of that employee, so it is better to hire more full-time employees to save money.
  • Waste removal: It can be control by reducing the waste that is by recycling the waste, also make sure the employees uses the recycle bin to lower the general waste.
  • Water Charges: It can be easily reduced by storing the rain water in the tanks and use it in the laundry, cleaning kitchen, avoid letting the water run, leaky fixtures and add an aerator to faucets.
  • Website hosting expenses: According to the income statement the variance between actual and the budget is zero, but it is important to update the website weekly/monthly about the new promo or the products offering by the restaurant. By this it will also increase the sales of the restaurant.



Having an advantage amongst your competitors is always a good sign for a venture to capture a good and safe position in the market. But at the same time to maintain the same, lots of efforts are also needed to put in. Coastal Restaurant Pty Ltd. has got the BYO license in the assessed year which other restaurants doesn’t have, makes them unique from the crowd. Which has led to higher customer expectation which is quite obvious but also have increased the cost. There are several cost drivers that have contributed in the increase of cost such as,

  • With increase in customers it becomes necessary to have sufficient manpower to tackle all the operations effectively. Therefore, depending on the need of business casual employees are also employed. With the employment of more employees, wages paid to them also increases which also affects the superannuation paid to them.
  • Advertisement is a much-needed aid to any business which helps in promoting the business in an effective and efficient manner. We can see from the income statement that advertisement expenses have increased from the expected one. Adding on the modes of advertisement has led the increment in the advertisement expenses.
  • Unlike other competitors in the market who have cut short their water expense by banning the packed drinking water, our venture has started giving their customers water bottles for free which has led to increase the water expenses.
  • Due to negligence of keeping track of equipment’s maintenance, an increase in repair expenses have been noticed. Negligent practices of using equipment’s leads to such losses.


Variable Analysis

From above screenshot, it can be seen that there are large variances from budgeted amounts in certain cases:

  1. Restaurant sales & Sales of goods/services: The actual sales have exceeded the budgeted amount by 50% which indicates weak budgeting exercise or unanticipated jump in sales. This is good as top line has increased but could be disastrous if raw material was not available in large quantities. The company may have had to buy at higher cost, leading to lower profits or letting go of increased revenue opportunity.
  2. Cost of Sales: The variance is around 27% which is much less than revenue variance, indicating good control over costs even when sales increased beyond expectation. This has led to higher profit margin as well.
  3. Casual employee wages: The variance is almost 0100% when compared to budgeted number. Again, this can be attributed to higher sales that may have required additional employees at higher wages. The restaurant has gained BYO now and can ask casual labour to turn into full time employees to save on additional wages. However, this will be beneficial if higher sales are expected to continue.
  4. Cleaning: The cost will obviously register an increase due to increase in sales and corresponding raw material processing.
  5. Credit card commission: The variance is quite high and impacting profit adversely. It depends on the number of the transactions occurs per day. To control credit card commission, we can talk to the bank and ask them to provide us a lump sum (a single payment made at a particular time) price for the specific number of the transactions.
  6. Food delivery cost: The variance is favourable as cost is lower than expected. This may be due to increased footfall in restaurant where people eat there rather than calling for delivery.
  7. Full time employee cost: The variance is unfavourable as wages have increased which may be due to increment or hiring of more employees to cater to increasing business. However, looking at increased casual labor wage as well, the restaurant must look into whether it is overstaffed and can do away with some costs component.
  8. Advertisement is a much-needed aid to any business which helps in promoting the business in an effective and efficient manner. We can see from the income statement that advertisement expenses have increased from the expected one. 
  9. Repair & Maintenance: This has registered unfavourable variance indicating need to look into shelf life of equipment etc. If the equipment is becoming old, restaurant must weigh benefits of replacing it all together and reduce costs and increase efficiency.
  10. Net Profit: The variance is favourable with profit being more than 150% than budgeted numbers. Again, this can be attributed to increased revenue, controlled cost of goods etc. However, restaurant needs to perform more effective budgeting exercise as variance is quite high in some cases.


As we discussed factors that drives cost, let us now talk about some of the elements which should be kept in mind to prevent incurring expenses more than the budgeted one and to keep a healthy ratio between the expenses and finances.

  • Labour Cost Control: As it is presented in the income statement that there is huge difference between actual wages paid to casual as well as full time employees than what was expected. It is one of the most critical areas where authorities should pay attention. Hiring a quality employee with right skills is a tough challenge. Also, well organised salary structure should be applied. By reviewing perquisites and salary levels regularly can help in eliminating cost.
  • Proper Management of Equipment’s: Efficient management of equipment’s should be ensured to avoid unexpected increase in repair and maintenance cost. By keeping regular track on equipment’s, related requirements and pre planned services can control the cost.
  • Track of the Purchase Sales Report: Another most important point that needs to be taken care of is keeping regular track of restaurant business. It will help to understand the sales pattern so that we can plan our purchase of raw material accordingly. So that least of wastage happens and more accurately and wisely the purchase is done.
  • Accurate Use of Credit Card: Using credit card as a backup is always a good option. But increasing the use of it can lead to excess commissions to be paid sometimes. So wise use of credit card should be done to avoid interest payments beyond limits.

Some of these points can help us to wisely plan our expenses and control the cost without compromising on the quality and customer’s good experiences and faith in us. Most importantly a perfect choice should be there between the crucial and vital cost components.

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