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HR7003 Twin River Cafe: Budget and Variance Analysis Assessment Answer

Assessment Guide


Your Task: 

The Twin Rivers Café is a company that prepares meals for tourists and citizens in its kitchen located next to the local airport. The company’s planning and actual budgets for July appears below:

The Twin Rivers Café

Planning and actual budgets for the month ended July 31, 2018


Budgeted meals quantity(q)18 00017 800 

Revenues (£4.50q)£81 000£80 100


Raw material (£2.40q)43 20042 720

Wages and salaries (£5 200+£0.30q)10 60010 540

Utilities (£2 400 + £0.05q)  3 300  3 290

Facility rent (£4 300)  4 300  5 100

Insurance (£2 300)  2 300  2 600

Fuel  2 480  2 490

Net Operating Income£14 820£13 360


  1. What is the objective of preparing a budget for Twin Rivers Café? (10 marks)
  2. Prepare a report showing the company’s revenue and spending variance for July and explain why this variance should be of concern to management? (20 marks)
  3. Which activity of variance should be of concern to management? Explain (40 marks)
  4. Advise the Twin Rivers Café on what they need to do to support their objectives. (20 marks)

The word count for this assignment is 1,500 words and will not include the title page, executive summary, contents page or bibliography.

 It is important that you show knowledge of key debates within the wider literature. Also, it is strongly advised that you are critical in your writing and ensure a good level of integration and coherence in applying theories. Please work on, and ensure an excellent level of criticality, coherence, and flow of your report. This will require effective discussion and clarity. 

 Please note that a significant amount of the marks are awarded on the basis of wider reading, critical and logical presentation, quality of argument, referencing, academic integrity and academic writing conventions. Please see Assessment Criteria on the Moodle.


The reassessment will be a resubmission of this report, with tracked changes made in response to the feedback given. The date for Reassessment is 24th January 2020.

The Learning Outcomes assessed by this assessment are:


  1. Analyse and critically evaluate major ideas and practices in the field of people management. 
  2. Evaluate major contemporary theoretical and managerial perspectives on people management.
  3. Demonstrate an understanding of different markets and sources of finance; and the role of budgeting in an organisation.  
  4. Be able to assess budgets based financial data to support organisational objectives (CMI Los 2).

Thinking skills

  1. Engage critically and analytically with literature relating to major developments in the field of people management.
  2. Appreciate how research into effective people management underpins thinking in the other, more specialised fields of HRM and HRD practice that you will be studying.
  3. Analyse the information contained in a company’s annual report; and appraise finance and investment decision.

Skills for life and work (general skills)

  1. Develop and express strong, original and well-justified arguments to support your views.
  2. Advise colleagues and senior managers about making improvements to management systems and thinking in organisations.
  3. Demonstrate an understanding of the context within which accounting operates, and the various local and international standards that need to be complied with.

Subject-based practical skill

  1. Ability to effectively apply HR theories and models to situations and various scenarios. 
  2. Effectively apply key ratios appropriate for analysing the financial performance of the organisation.
  3. Effectively apply budgets and investment appraisal techniques.

We strongly suggest that you try to submit all coursework by the deadline set as meeting deadlines will be expected in employment. However, in our regulations, UEL has permitted students to be able to submit their coursework up to 24 hours after the deadline.  The deadline is published in this module guide.  Coursework which is submitted late, but within 24 hours of the deadline, will be assessed but subjected to a fixed penalty of 5% of the total marks available (as opposed to marks obtained).  If you submit twice, once before the deadline and once during the 24-hour late period, then the second submission will be marked and 5% deducted.  This rule only applies to coursework.  It does not apply to examinations, presentations, performances, practical assessments or viva voce examinations.  If you miss these for a genuine reason, then you will need to apply for extenuating circumstances, or accept that you will receive a zero mark.


Budget and Variance Analysis

a) Objectives of budget preparation

Budget is the process to estimate the future and; to operate itself to work as a going concern. The company‘s future planning and growth are based on the operation as to how the company operates with the available resource. The budget is to be prepared because the resources are not available to the company all the time as this is a channel in the regular operations in the company. The company prepares the objective for the future and sets the operational target. To achieve these small targets, the company has to start with estimation and this estimation is called a budget (Lai, Zin, Yahya, & Saar. 2016). With the help of the budget, the company can communicate all its plans and small target to the shareholder of the company and this also motivates the company’s employees to achieve their performance. After budget preparation and work accordingly, the company evaluate its position and check the variance in the prepared budget and actual working. The variance analysis helps to evaluate the performance of the company and facilitate the company to identify the factor due to which the variance occurs and help to improve in future preparation (Bonamente, 2017)

The main objective of the company can be defined with bullets as explained below:-

  • Planning:

Budget is prepared in the beginning with the target and looks forward to attaining these targets during the year. This will help the company to complete all the operations and reduce the difficulties in the operations of the company. Planning also gives the rule of performance to the employee of the company so that they can be motivated to achieve their objectives (Bonamente, 2017).

  • Direction:

Budget gives the direction to the company and prepares the company for the future and ongoing operation to overcome the objective with the available resources so that it does not create the hurdles to the company during the year.

  • Controlling:

The company evaluates the performance of the company and controls the activities which can be prevented so that the budget target can be achieved (Wang, Fong, Wu, & Wong, 2016).

  • Evaluation :

After achieving the result and performing according to the budget, evaluates and identify the reasons due to which the variances occurred and resolve it for further action or in budget.

b) Revenue and spending variance and reason for management concern

Statement of variance showing the changes in variance and remarks for July

The report showing the variances of Twin River Café 
Particulars Budget   Actual  Variances  variances remarks variances in%
 Units   C.P.U  Amount  Units   C.P.U  Amount 
Revenue   18,000.00            4.50      81,000.00    17,800.00            4.50      80,100.00          (900.00) A 1%
raw material            2.40      43,200.00             2.40      42,720.00            480.00  F 1%
wages and salaries             0.30        5,400.00             0.30         5,340.00               60.00  F 1%
utilities variable            0.05            900.00             0.05            890.00               10.00  F 1%
Total variable cost            2.75      49,500.00             2.75      48,950.00            550.00  F 1%
wages and salaries         5,200.00           5,200.00                      -    - 0%
utilities          2,400.00           2,400.00                      -    - 0%
facilities rent          4,300.00           5,100.00          (800.00) A -19%
insurance         2,300.00           2,600.00          (300.00) A -13%
fuel         2,480.00           2,490.00            (10.00) A 0%
Total fixed cost       16,680.00        17,790.00      (1,110.00) A -7%
Net operating income       14,820.00        13,360.00         1,460.00  

Importance of the variances for the management

Budget and variances analysis facilitates the management to understand the factors affecting the budgeted data and the actual data so that the future objective of the company can be achieved. The company looks forward to work in a long period with the objective of profit and for it, prepare the budget and attain the target, if any deviation arises in the expectation then it should take appropriate action. Management should identify the reason due to which the company is not attaining the objectives which are planned by the company (Templeton, & Burney, 2016). With the help of a statement of variance analysis report, management will mitigate the adverse factor and improve the current situation. In this report, management can check that the budgeted production and sales of the company have an adverse variance due to which all the variable cost variances are favorable as the quantity is reduced by 900 units. The fixed cost in the budget statement has increased. The increased fixed cost has adverse variance and the ultimate effect was on the net operating income. If the company could control the fixed cost then the operating income of the company can be increased. Here, the estimated fixed cost of the company has increased and due to which the outcome is adverse (Vesty, & Brooks, 2016).

The management should take into concern the adverse variance and should focus on to increase the sales so that the adversity can be converted into favorability. The twin river café should increase its sales and reduce the expenditure like fixed cost and if Twin River Café cannot reduce its fixed cost by increasing the sales so that per-unit fixed cost will be less (Accolley, 2018).

c) The management concern on the Activity of variance

The activities of variance that should be concerned by the management are those activities that affect the company’s objective and decision making and the activities which do not change with the level of production. There are two types of variances like favorable variances and adverse variances; both variances have a significant role in business decision making Twin River Café has planned and prepared the budget to achieve its objective (Conine, & McDonald, 2017). The company has an adverse variance in revenue as the quantity sold not as per the budgeted quantity and due to which the variable cost has a favorable condition. But the most important concern that is required on the activity of variances is the fixed cost of the company (Noholo, & Wuryandini, 2018). The fixed cost such as utility expenses, rent expenses, facility rent, fuel, and insurance, are having adverse variance because the company could not act as per the budget (Silvester, 2017).

The Twin river café is going to start the business near the airport and for it, the company estimated all types of expenditures and set the benchmark to a level of sales quantity. The main objective behind this budget is to high sales and increased profit. But as per the actual result and budgeted plan the variance occurred and all these adverse variances due to the fixed expenditure and reduced level of sales.

The activity of variance should be favorable to the management as what the company planned and can achieve it. The fixed cost expenditure and the quantity both are unfavorable to the management because due to the low level of quantity, the company cannot achieve its benchmark as they planned. The variance and analysis can be better understood with the following table (Tan, & Low, 2017).

Activity of variances that should be of concern to the management.
ParticularsBudgetActual variances  variances in %Remarks and suggestion to the activity of variances
Quantity    18,000.00    17,800.00 -£ 200.00 -1.11Need to increase
facilities rent  £  4,300.00  £  5,100.00 -£ 800.00 -18.60Need to control and should reduce so that the profit can be increased
insurance £  2,300.00  £  2,600.00 -£ 300.00 -13.04
fuel £  2,480.00  £  2,490.00 -£    10.00 -0.40

According to the above table, the results can be seen that the company estimated the quantity of 18000 units but the company made the sales only of 17800 quantities and the adverse variance of the units is 1.11% i.e. of 200 units. These 200 units’ variances, the total cost p.u are increased and the level of profit is decreased. Because the fixed cost does not vary according to the level of production and total cost P.U can be reduced only by producing more quantity. The facilities rent, fuel, and insurance are spent more than the budget (Yensu, Yiadom, & Awatey, 2016). The management should consider these variances which have an adverse effect. 

d) Advice to the management to support their objective

Twin river café is willing to start the business near the airport. The business will be achieving its objective only if the management properly managed their resources and follow the relevant costing approach so that the management can accurately and transparently identify the cost of every variable which is relevant in decision making (Abernethy, & Stoelwinder, 2011). The management should follow the costing approach such as Activity-based costing, target costing, quality management and also prepare the profitability statement so that the company can also identify which product is generating more profit. The company should also select the best supplier of raw material and other product which is used in the production of the final product, who is offering the material of best quality with less cost (Asogwa, & Etim, 2017).

The management should be advised to focus and consider the following points:

  • Prepare profitability statement of every product to support their objective
  • Control the fixed cost 
  • Reduce the cost P.U
  • Optimum utilization of resources
  • Prepare the flexible budget for every key factor 
  • Follow the standard budget 
  • Properly evaluate the budget and identify the reason for the variances
  • Consult with the cost expert. However, these factors will help the management to achieve their objective.
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