Cover Page

TASK 1: INTERPRET AND COMPLETE BUDGETARY

REQUIREMENTS

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Table of Content

Question 01 ..................................................................................................................................... 1
Question 02 ..................................................................................................................................... 1
Question 03 ..................................................................................................................................... 1
Question 04 ..................................................................................................................................... 2
Allocating budget resources ............................................................................................................ 2
I. ................................................................................................................................................... 2
II. .................................................................................................................................................. 3
III. ................................................................................................................................................. 4
IV.................................................................................................................................................. 4
V................................................................................................................................................... 5
Monitoring financial activities against budget ................................................................................ 5
I. ................................................................................................................................................... 5
II. .................................................................................................................................................. 6
III. ................................................................................................................................................. 6
IV.................................................................................................................................................. 7
V................................................................................................................................................... 7
Completing financial and statistical reports .................................................................................... 8
I. ................................................................................................................................................... 8
II. .................................................................................................................................................. 8
III. ................................................................................................................................................. 8
IV.................................................................................................................................................. 9
V................................................................................................................................................... 9
VI................................................................................................................................................ 10
References ..................................................................................................................................... 11
Appendix ....................................................................................................................................... 12

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Question 01

• Establishing actual position

• Comparing actual with budget
• Calculating variances
• Establishing reasons for variances
• Taking action to exert control

Question 02
Variance reports highlight deviations from the budget. Budgets are set at the start of the year,
based on expected revenue and expenses. Each month the financial statements will be analyzed
to show where any variances are occurring so that the issue can be rectified, or at least
explained to the senior management team.

Question 03

• Keep Budgeting and Forecasting Flexible

• Communicate Early and Often
• Involve Your Entire Team
• Be Clear About Your Goals
• Plan for Various Scenarios
• Track Everything

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Question 04
Mentoring and coaching are two of the most effective methods that a Team Leader can use to
help ensure that team members gain the knowledge and skills required to fulfill their roles.
Mentoring involves one individual (the mentor) using their knowledge, skills, and status to
assist another individual (the protégé) develop their careers. In effect, mentoring usually
involves a Manager taking a junior member of staff under their wing and guiding them to
advance their career.

Allocating budget resources

I.

A budget allocation is the amount of funding designated to each expenditure line. It assists in
the allocation of resources. It designates the maximum amount of funding an organization is
willing to spend on a given item or task, and it is a limit that is not to be exceeded by the
employee authorized to charge expenses to a particular budget line

Funds may be allocated for various reasons such as:

● Sales and marketing

● Operations

● Utilities

● Purchases of assets

● Repairs and maintenance

● Staff hiring

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 Budget allocation is a significant part of all business and financial plans. It is therefore
important to stick to the budget allocated funds. Each category can be made of several budget
allocations, referred to as line items, for the specific need necessary to support the program or
overall department operation.

II.

Operating expenditure Budget includes most expenditures for operating the firm's normal line
of business, which are not capital spending. Operating expenses do not result in capital assets.
Instead, they serve entirely for operating the business. On the Income statement, they are
subtracted from revenues in the accounting period they are incurred. The operating budget
primarily sets the revenue, expenditure, and profit targets.

The operating budget includes:

a. Sales or revenue budget

This is the most preliminary budget as all expenditure depends on the level of revenue
produced by the business.

b. Purchases and Cost of Goods Sold (COGS)budgets

The purchases and cost of goods sold budgets are prepared in the next step as they are linked
to the inventory of the business, required to reach the budgeted revenue targets.

c. Wages (labor)budget

Includes the wages and employment costs, including superannuation, payroll tax if applicable,
recruitment, and training cost when preparing the cost.

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III.

Capital expenditure is funds used by a company to acquire, upgrade, and maintain physical
assets such as property, industrial buildings, or equipment for the long-term running of the
business or expansion of the business. The Capex should identify individual assets when they
are to be purchased and for what cost.

A comprehensive analysis must be completed before setting the Capex budget to understand
the business needs for the year and obtaining relevant prices and suppliers for the required
equipment or other assets. When budgeting for property purchases, you must include all
transaction costs, such as stamp duty, solicitors’ fees, and building inspections as well as the
actual purchase price as these fees can be quite significant and may make the difference as to
what you can purchase.

IV

The budget can be classified based on target, capacity, condition, and the period. The most
important purpose among them all is to control the future of the business.

A budget is a yardstick against which actual performance is measured and assessed. Control is
provided by a comparison between the actual results against the budget.

● Compels management to think about the future and set out detailed plans for
achieving the targets for each department, operations, and each manager

● Requires managers of budget centers to be made responsible for the achievement of

budget targets for the operation under their control

● Enables remedial action to be taken as variances emerge

● Motivates employees by participating in the setting of budgets

● Improves the allocation of scares resources

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V.

Budget allocation is a significant part of all business and financial plans. It is therefore
important to stick to the budget allocated funds. Each category can be made of several budget
allocations, referred to as line items, for the specific need necessary to support the program or
overall department operation.

They are usually divided into departments and program units and this allows for:

● Easier identification of the resources allocated to a specific task or process

● Monitoring and adjusting of the allocated resources

● Tracking deviations and taking necessary preventive or corrective actions.

Monitoring financial activities against budget

I.

This helps in monitoring and tracking the progress and is an important part of the budgeting
process. This is the last part of the operating budgets. It is in the format of a Profit and Loss
Statement but shows the budgeted amount instead of the actual data. This shows the financial
impact of the budget indicating whether or not a profit will be made at the end of the year.

A comprehensive analysis must be completed before setting the Capex budget to understand
the business needs for the year and obtaining relevant prices and suppliers for the required
equipment or other assets. When budgeting for-property purchases, you must include all
transaction costs, such as stamp duty, solicitors’ fees, and building inspections as well as the
actual purchase price as these fees can be quite significant and may make the difference as to
what you can purchase.

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II.

Good financial management systems and processes for tracking resource utilization are
essential for a department to make effective use of its resources. Effective planning and
financial control will help departments to:

● Ensure the efficient and effective use of resources

● Make sound business decisions

● Demonstrate accountability

● Take remedial action where needed

Regular monitoring of the expenditure is essential; not just to verify expenditure against the
target but also to identify changing patterns or circumstances that need immediate or corrective
action. Monitoring is a continuous process that continues even after the final budget.

III.

The deviation between the budgeted amount for a figure and the actual result in the report is
referred to as the budget variance. In general, when the variances for each department have
been identified, the finance team would complete a general ledger print out to check whether
there have been any errors in recording transactions.

An A-comparative analysis report will help us do that.

● Identify and isolate each area of income, cost of sales, or expense that has a variance

● Determine whether the variance is acceptable or not

● Investigate why the variance occurred

● Discuss with manager’s options available to help them reduce variations

● Hold staff meetings to discuss the causes of the variations and strategies to meet targets

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IV.

Revenue variances should be analyzed and improvements suggested by staff within the
department as well as the manager. The revenue variance for an accounting period is the
difference between budgeted and actual revenue. A favorable revenue variance occurs when
actual revenues exceed budgeted revenues, while the opposite is true for an unfavorable
variance.

Often the staff on the front line can suggest the reasons for the variance and will be able to
give suggestions for improvement. Revenue can be improved through relevant sales strategies
such as special offers and discounts and applying up-selling or cross-selling skills by the staff.

V.

A significant increase in price by any of the suppliers and their costs versus the quality of the
products offered must be verified. The important thing to remember is to ensure that the
products you sell will be of high quality and good service can be provided.

Any changes that are made to the budget should be recorded so that future budgets can be
made based on this information, rather than using the outdated information from the start of
the year. You should collate all variances that are discovered throughout the year, as well as
the required changes, to enable the budget to be updated. Any information collected during
your analysis and investigations should be collated and stored in the financed department or
owner’s office for future reference.

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Completing financial and statistical reports

I.

The company can estimate the total revenue and then derive the percentages of each revenue
and expense code obtained in the previous year. An estimate is a forecast or prediction of the
actual cost, based on the business objectives concerning cost, time, and performance. A reliable
and accurate data must be used otherwise the budget will not be an accurate reflection of the
business. Therefore, you must be proactive and control your budget. The key aspects to
consider for budget estimates are:

• Income and expenses before the budget are created

• Revenue and expenses – by reviewing past period financial statements to analyze how
the business has evolved since then

II.

Mentoring and coaching are two of the most effective methods that a Team Leader can use to
help ensure that team members gain the knowledge and skills required to fulfill their roles.
Mentoring involves one individual (the mentor) using their knowledge, skills, and status to
assist another individual (the protégé) develop their careers

III.

There can be a lot of ways to assess those costs and resources and proactively identify areas
for improvement. Among those following can be taken to action.

To review your monthly budget performance, follow the below steps:

● Analyze the financial reports and determine the variance

● Discuss with the relevant teams and preventive actions for improving budget performance

● Plan and implement corrective and preventive actions for improving budget performance

● Monitor and review the targets

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IV

To review your monthly budget performance, follow the below steps:

● Analyze the financial reports and determine the variance

● Discuss with the relevant teams and preventive actions for improving budget performance

● Plan and implement corrective and preventive actions for improving budget performance

● Monitor and review the targets

V.

A thorough review of the draft budget for incorporating for each department and the revenue
or expenses category is the most important step; once that is finalized; the necessary approval
procedure must be completed. Another important aspect that must be considered is the budget
timelines. The budget must be completed before the new financial year starting.

The budgeting process takes a few days to a few months based on the size and type of
hospitality business. After the final budget has been prepared and signed off, a hard copy and
soft copy should be kept in a designated and secure place, usually the Financial Controller's
office. This step is important as the budget is the reference for the business for the coming year
and is required not only for reporting purposes but also for funding requirements and other
needs

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VI.

There are various people involved in the budgeting process. The final budget must be
distributed to the appropriate people upon completion.

This includes:

● Senior management team

● Finance team

● Department managers

● Staff

The management team and each department head should understand their contribution to the
budget performance and outcomes and its effect on their operations. Any subsequent changes
in the draft must be notified with relevant reasons. The managers are then required to provide
a report on their department for the month, commenting on any budget variances the overall
department performance.

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References

Jones, T. A. (2008). Changes in hotel industry budgetary practice. International Journal of

Contemporary Hospitality Management,, 20(4), 428-444.

Raymond, S. S., & Agnes, L. D. (2019). Where is the Cash in Clubs? nternational Journal of
Hospitality & Tourism Administration, 1-20.

Roberts, S., & Howard, J. (1996). Introductory Accounting; A CBT Approach. Sydney: McGraw-
Hill Book.

Steed, E., & Gu, Z. (2009). Hotel management company forecasting and budgeting practices: a
survey‐based analysis. International Journal of Contemporary Hospitality Management,
21(6), 676-697.

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Appendix

Table 1:

SSBT HOTEL
Forecasted Room Sales
Number of rooms Forecasted Average Operating Forecasted Room Last Year
available occupancy % Room Rate Days per Revenue (Sales) 2014
year
80 90% $125 365 $3,285,000 2,983,225

Forecasted Room Revenue / Sales =

Number of Rooms available x forecast occupancy % x Average Room

Rate x Operating Days per year

= 80*90%*125*365

= $3,285,000

Table 2:

Forecasted Food and Beverage Sales

Number of Forecasted Average Operating

Seats Seat Spend per Days per Forecasted F&B
available Meal Period Turnover customer year Sales Last Year Sales

50 Break Fast 1.25 $15.00 362 $339,375.00 $318,373.00

50 Lunch 2.2 $31.00 362 $1,234,420.00 1,023,532.00

50 Dinner 2.8 $45.50 362 $2,305,940.00 $2,112,321.00

Total annual projected restaurant sales for all meal

periods $3,879,735.00 $3,454,226.00

Forecasted Food & Beverage Sales =

Number of Seats Available x Forecasted Seat Turnover x

Average Spend per customer x Operating Days per year

= 50*1.25*15*362 = 339,375

= 50*2.2*31*362 = 1,234,420

= 50*2.8*45.5*362= 2,305,940

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 Table 3:

SSBT Hotel

Income Statement for period January 2015

Month (January 2015)

Account Variance
code Budget $ Budget % Actual $ Actual % Variance $ (A-B) % F/V

Revenue
Rooms $270,000.00 42% $293,733.00 41% $23,733.00 -1%

Revenue
Food $225,067.00 35% $281,623.00 39% $56,556.00 4%

Revenue
Beverages $96,457.00 15% $82,637.00 12% ($13,820.00) -3%

Revenue
Functions $32,810.00 5% $43,277.00 6% $10,467.00 1%

Revenue
Telephone $15,224.00 3% $12,342.00 2% ($2,882.00) -1%

Total
Revenue $639,558.00 100% $713,612.00 100% $74,054.00 0%

Year to Date (July 2014 to Jan 2015)

Revenue
Rooms 2,139,200.00 36% $2,830,484.00 39% $691,284.00 3%

Revenue
Food 1,539,923.00 26% $1,823,833.00 25% $283,910.00 -1%

Revenue
Beverages 1,277,291.00 21% $1,229,384.00 17% ($47,907.00) -4%

Revenue
Functions 938,362.00 16% $862,083.00 12% ($76,279.00) -4%

Revenue
Telephone 73,911.00 1% $522,830.00 7% $448,919.00 6%

Total
Revenue 5,968,687.00 100% $7,268,614.00 100% $1,299,927.00 100%

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Budget $ for Revenue Rooms per month =

Number of Rooms available x forecast occupancy % x Average Room

Rate x 30 days per month

= 80*90%*125*30

= $270,000.00

Forecasted Food & Beverage Sales =

Number of Seats Available x Forecasted Seat Turnover x Average Spend

per customer x 30 days per month

= $321,525.00

It is estimated that from the Total F&B sales, 70% is Food Sales and 30% is Beverage Sales.

To calculate Food & Beverage Sales use the above formula and distribute 70% for Food Sales and 30%
for Beverage Sales to enter in Income Statement for the month of January

Budget % = (Budget $/ Total Revenue) x 100

Budget Variance in $ = Actual - Budget

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Table 4:

SSBT Amazon Restaurant

Cash Budget for the month of Oct, Nov and Dec 2014

October November December

Opening Bank Balance

$30000.00 $192,917.30 $505,144.10

Receipts

Cash Sales
$162,917.30 $242,405.10 $208,244.40

Cash Receipt from A/C Receivable

$69,821.70 $103,887.90

Total Receipts
$162,917.30 $312,226.80 $312,132.30

Cash Available

(Opening Bank Balance plus Total Receipts)

$192,917.30 $505,144.10 $817,276.40

Purchases $76,133.00 $131,591.00

Other Expenses
$17,283.00 $43,243.00 $24,536.00

Total Payments $17,283.00 $119,376.00 $156,127.00

Surplus / Deficit Closing Balance

(Cash available minus Total Payments) $175,634.30 $385,768.10 $661,149.40

Sales are typically 70% Cash and 30% credit each month with a month delay for collection.

Purchases are paid for in the next month

Other expenses are paid in the month incurred

Bank at start 30000 for October

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 Sales Purchases Other Expenses

October $232,739.00 76133 17283

November $346,293.00 131591 43243

December $297,492.00 95437 24536

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