SITXFIN003 Analysis Of Budget Variance Assessment 1 Answer

Answer :

Analysis of Budget Variance

1. Introduction 

In this report, budgeted profit has been calculated for the 3 months and variance has been calculated by comparing the Actual profit. The Preston Function Centre is in the social function events business and provided the data for the actual profit- expenditure and budgeted profit loss for January February and March. This data has been compared and the reason for the variance between them is also analyzed.

2. Answer to question no-1

The function center has performed in not in a quite impressive way. As it has a lower revenue of $ 7556 as compared to the budget. Although it has higher beverage revenue than the budgeted beverage revenue, it has increased it by 1.82%. The managers were not able to secure the 150-fax function in March due to late cancellation which also leads to the decrease of the profit. As the cash bar was also not able to seek people's attention but still made more revenue which shows the business capability of the center (Andriani, Karman, & Sudana, 2019). The cost of the sale of food was higher by $ 23700 and beverage was also the higher by $ 5926 which shows the inefficacy of the management. Following are the variance listed below: -

The above table shows that revenue is reduced by just .77% but the profit has reduced with a higher percentage which is 52%. This is implying that expenditure was higher than expected and show that managers were not able to deal with it.

3. Answer Two

The main reason to earn a lower profit is its expenditure which mainly related to the cost of sale and pays roll expenditure (Cormack, & Grossman, 2019). These were the higher by 10 % from the budget. There were overstaff during the 3 months and they were also newly hired and underproductive to the company. Following are the table: -

4. Answer Three

There is some expenditure which has shown a positive result and helps to secure the expenditure. This has improved the profit and help the organization to achieve the budgeted profit set by the management. Following are the table to show the positive result: -

Printing and stationery costs have been reduced due to the supervisor's initiative to recycling the drive. 

Entertainment expenditure is reduced as the manager has managed to apply lower cost staff and instrument with the same service (Iftekhar, 2019). Laundry & Dry- Cleaning has also been reduced by $ 10760 which shows the lower guest appearance in March as the last movement function was canceled.

5. Answer Four

There is some expenditure which has adverse variance as compared to budget. This is also the reason for the lower profit. Following are the table show the variance effect: - 

The Couse for the food expenses may be because management has prepared the food as they did not indicate the cancelation of the booking in the last moment of March (Eliashiv,., Subramanian, & Miller, 2019).

The advertisement cost has gone up and the reason can be to secure the booking in the last moment of March because as mention above booking was canceled by the organizer with insufficient time.

Utility cost was up higher as the customer was also compelling about the services like toilet cleaning etc. there could be some other reason like the same.

6. Answer Five

The function must have developed their cancelation policy so in case if any customer cancels the booking the deposit amount will not be refunded to the party. In the given scenario function center should contact the business owner in the same line and ask them to help to secure any booking so that cost or loss can be minimized and the function center can cover up the profit.in consideration, they can offer the commission to them.

Cancelation policy should include the following point and discuss with the client clearly before the booking of any event: -

The advance amount of the deal should be deposited with the function center. This deposit amount should not be less than 30 % of the total booking charges.

If the customer wants to cancel the booking then they have to cancel it before 30 days otherwise the deposit will not be refunded (Wing, et al. 2019).

In case of cancelation, 50% of the deposited will be forfeited and the rest of the amount refund in case booking cancel as per our policy (Cho, & Sharma, 2019).

7. Answer Six

A cash bar was successful as it has made extra revenue by $ 5194 from the budget. Following are the detailed

It can be improved if there were a good music system to entertain people. There should be a dance floor to enjoy the drink. There should be combo drink packages or inclusive beverage offer applied. If it offers the all-inclusive beverage than it should be between $25 to $ 33.

8. Answer Seven

Food expenditure has been increased by 12% of the budget.

9. Answer Eight

Payroll concerning casual employees is having a higher cost of $ 32000. This can be avoided by ensuring the contract with the Agency likens Manpower supplier. 

10. Answer Nine

If it is assumed that the budget was not correctly prepared then it should be prepared again by discussing the whole budget and analyzing the loop whole in the previous budget. There has to be a discussion with the top manager, head of departments and key Team leader of the organization (Swanberg, et al. 2019).

Top managers can provide the line of action and overall view of the object of the company which helps to prepare the budget accordingly. The Head of each department within the organization can help to reduce the cost like a purchase manager can provide valuable advice in respect of supplier selection and marketing head can suggest a good advertisement policy. A team leader can also suggest reducing employee costs and improve efficiency with a good working environment.

11.Answer Ten

12. Conclusion

As from the above discussion it can be interpreted that Preston Function Centre should work harder to reduce its variance and reason should be eliminated for the same so that the organization can earn a higher profit.