SITXFIN003 Analysis Of Budget Variance Assessment 1 Answer

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Question :

Assessment Task 1

Unit code and nameSITXFIN003Manage finances within a budget
Assessment titleAssessment Task 1 Assignment

Section 1 - Budgeting Exercise

The Preston Function Centre is a 300-seat venue catering for social functions (weddings, parties etc). Using an excel worksheet you are required to construct a month-by-month profit budget for the first quarter of the year using the following information:

SALES BUDGETS

Function numbers: Predicted functions for the first 3 months of next year are as follows:

Month100 pax150 pax200 pax300 pax
January4243
February3543
March4744

Pricing

Pax100150200300
Food$90$85$80$75
Beverage$30$30$30$25
Cash Bar$5$5$5$5

The function centre considers that it is reasonably priced and does not willingly negotiate their prices. In the case of an alcohol free function, they may reduce the price of beverages. The stated beverage prices include beer, wine and soft drinks.

The Function Centre also provides cash bars at most functions where customers can purchase spirits, mixedrinks and cocktails.  They have estimated this extra revenue to be $5 per person attending every functio(taking into account that at some functions people may spend a lot more than this, but at other functionpatrons may not spend any extra on alcoholic beverages).

COST OF SALES

The menu is designed to produce a food cost of 28% of food revenueBeverage cost is expected to be 30% of beverage revenue.

PAYROLL COST

Permanent wages at the function centre cost $25,000 per month.  Casual wages are budgeted to cost aadditional 27% of total revenue.

OTHER OPERATING COSTS: Other monthly operating costs are predicted to be:

Cleaning5,000
Laundry & Dry-cleaning1,500 plus 2% of Total Revenue
Cutlery, Crockery & Glassware3,000
Linen2,000
Uniforms3,000
Advertising12,000
Audit, Accounting & Legal Fees2,800
Credit Card Commissions1% of Total Revenue
Insurance3,000
Printing & Stationery950
Waste Removal900
Repairs and Maintenance2,000
Utilities (electricity, gas, water, phone)6% of Total Revenue
Entertainment$500 per function

Section 1 – Budget Data

Budget data worksheets for January

How do you calculate Revenue?

Number of customers (pax) =

Revenue for January

SizeNumberPaxFoodBeverage
Per personRevenuePer personRevenue
100

$90
$30
150

Show More

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: -

ParticularActualBudgetVariance
TOTAL Food Revenue681750694500$12,750
TOTAL Beverage Revenue291194286000-$5,194
TOTAL REVENUE972944980500$7,556


NET PROFIT BEFORE TAX$ 67680$ 140310-$ 72630


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: -

ParticularActualBudgetVariance
COST OF SALES
Food218160194460-23700
Beverage9172685800-5926
    
PAYROLL   
Permanent75000750000
Casual296748264735-32013

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: -

ParticularActualBudgetVariance
TOTAL Beverage Revenue291194286000-$5,194
Cleaning1265015000$2,350
Laundry & Dry-cleaning1335024110$10,760
Linen replacements58456000$155
Uniforms86009000$400
Audit, Accounting & Legal84008400$0
Credit Card Commission91459805$660
Insurance90009000$0
Printing & Stationery20502850$800
Waste Removal27002700$0
Repairs & Maintenance50006000$1,000
Entertainment2050023500$3,000


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: - 

ParticularActualBudgetVariance
Food218160194460-$23,700
Casual296748264735-$32,013
Cutlery, Crockery & Glassware92409000-$240
Advertising3950036000-$3,500
Utilities7765058830-$18,820

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

ParticularActualBudgetVariance
TOTAL Beverage Revenue291194286000-$5,194

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.

ReasonRecommendationsDissuasion with supplier
The cancellation of the booking at the last movement could be the reason as the food was prepared as per all bookings (Jena, & Sikdar, 2019).Cancelation policy should be made and on last movement cancelation, food cost should be set off by non-refundable amount or deposit.In the case of a big event, there should be a tender process for the supplier so they give their best quotation at a lower rate.
There may be non-seasonal veggies or food items which could be costly.Food should be offered as per the season because they are easily available in the market at a lower cost.Suppler chain relationship should be maintained by the company so that business can be done with two-way communication.
Wastages of the food material and buying the material at a higher rate.There should be proper supervision of the wastages.The company should discuss the quality standard of the supplying product to keep the test high.


ParticularActualBudgetVariance
Food218160194460-23700


9. Answer Eight

ReasonRecommendationsRostering controls 
As the staff was newly hired therefor productivity was lower.The labor turnover ratio should be controlled so that old experience staff remains with the company.Rostering controls help the organization to automate the process of creating and she dual the employee. 
Staff was over hired due to which salary expenses have increased.An employee should be taken according to the workload so that excess expenses can be controlled.It will improve the productivity of the employee by availability request.
Training cost of new staff and supervision expenses to observe their working lead to higher costs (Zhou, et all. 2019).Trained staff should be higher to avoid the higher cost as their efficiency and productivity are higher.Help to easily maintain all shift and reduce the cost of supervision.

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

Specific recommendation  Employees to be consulted Benefits
Purchasing costs related to food and beverage should be controlled.Purchases managers should be involved in the discussion to know the reason behind the higher cost and variance.This will help to reduce cost and variance.
Training of the staff should be done properly to increase productivity.The Head of the HR department should be involved in the discussion.This will help to improve productivity and service.
Utility services should be improved to provide quality services.The utility manager should be involved in the discussion.Customers will experience good quality service and it will work as advertising for the Preston Function Centre.
The advertisement of the company should be done with an innovative approach so that customers can retain the name of the Preston Function Centre (Meinert,  Eerens, Banks, & Car, (2019).Marketing Head should be considered for this purpose.It will help to improve the revenue and retained the new customer.
Finance or funding for the business should be considered in the way so that cost can be minimized as compared to others.The chief finance officer should be considered to approach for any discussion.It will lead to reducing the finance cost of the Preston Function Centre.
Customer feedback should be taken after every event.Customer Relationship manager should involve in the discussionThis will help to overcome the limitation of the organization and improve the quality service.

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.