SITXFIN004A (S6523) Manage Finances within Budgets
SITXFIN005A (S6524) Prepare & Monitor Budgets
Student Workbook Exercises
Sales Budget
Exercise 1
The Essex Restaurant is a large, licensed establishment and budgets its sales a
year in advance; actual sales are reviewed in the light of the budgeted figures at
the end of each 4-weekly period. The sales of the restaurant for the past three
years have been as follows:
Analysis of past sales
2001
2002
2003
Restaurant sales
17950
18650
19020
Percentage increase on previous
year
7%
4%
2%
Bar sales
9 100
9 550
10220
Percentage increase on previous
year
4%
5%
7%
Sundry sales
3 050
3 200
3 400
Percentage increase on previous
year
5%
5%
6%
Total sales
30100
31 400
32640
Percentage increase on previous
year
6%
4.3%
4%
The following supplementary information is also made available:
(1) Restaurant sales: The rate of increase in this section of the turnover is falling
off. This is due to the limited dining room space available. It is thought that, in the
circumstances, little increase in sales is possible.
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(2) Bar sales: The turnover has been rising satisfactorily but in view of the
limiting factor restricting restaurant sales a higher rate of increase cannot be
expected.
(3) Sundry sales: This is expected to increase at least as well as in 2003.
Exercise 2
At the end of January 2004 the following results where recorded. Compare these
figures to your budgeted figures and complete a Monthly Sales report discussing
the results.
Restaurant sales
Bar
Sundry
Total
15200
8400
2800
26400
Exercise 3
Calculate the forecasted sales for Victoria Motel based on the information given
below:
NUMBER OF
ROOMS
50
AVERAGE ANNUAL
OCCUPANCY
89%
AVERAGE
ROOM RATE
$65
NUMBER OF
OPERATING DAYS
365
Exercise 4
A
Prepare a Sales Budget for Quinlan’s Hotel based on the following
information.
Rooms Available 135
Occupancy
Month
%
Ave
Room
Rate
Jan
65
125
Feb
72
135
March
85
138
April
90
137
May
95
140
June
60
125
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Average
Room
Density
2
1.5
1.3
1.3
1.4
1.8
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B
Prepare operational departmental budgets from the following information.
Rooms Division
Fixed Wages of Reception of $6500 per month
Fixed wages of House keeping of $3,500 per month and flexible wages of 20% of
Rooms revenue.
Rooms Supplies 2% of Room Revenue
Linen Supplies 3% of Rooms revenue
Food and Beverage
The restaurant operates for Breakfast, Lunch and Dinner.
The average number of covers is related to the number of house guests.
Breakfast 78% of House guests have breakfast. Average Cover is $15.80
Lunch 27% of House Guests have Lunch Average Cover is $24.50
Dinner 64% of House guests have Dinner. Average Cover is $32.75
Lunch Beverage is approximately 25% of food revenue.
Dinner Beverage is approximately 35% of Food revenue.
Food and Beverage Wages
Fixed wages of $6,000 per month and variable wages of 24% of Food and
Beverage Revenue.
Telephones
Ave Revenue is 8% of Room Revenue.
Fixed cost of $2,000 per month
Fixed wages of 1,500 per month
Variable Wages 7% of Rooms Revenue.
C
Prepare a Profit and Loss Statement for the 6 months.
Exercise 5
Prepare a budgeted income statement for the Hospitality Motel for the next
financial year.
Rooms Division
• 100 rooms
• average room rate for next year $125
• average occupancy for next year 80%
• fixed costs for Rooms Division $350,000
• variable costs — $15 per hour
• room cleaning time - half an hour per occupied room
• labour on-costs - 15 percent of total wages
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• overheads $25 per occupied room
Food and Beverage Division
Sales information:
• 50-seater coffee shop
• breakfast derived solely from resident guests
• 50 percent of overnight guests eat breakfast
• 50 percent of the occupied rooms occupied by two persons
• 50 percent of the occupied rooms occupied by one person
• average spend for breakfast expected to be $10
• lunchtime seat turnover in the coffee shop 1.5
• average spend for lunch expected to be $15
• dinnertime seat turnover in the coffee shop 2
• average spend for dinner expected to be $25
• beverage revenue - 50 percent of food revenue
Costs information:
• food costs - 30 percent of food sales
• beverage costs - 28 percent of beverage sales
• labour costs for both food and beverage - 35 percent of the
respective anticipated sales
• overhead costs for both food and beverage - 25 percent of the
respective anticipated sales
• expected annual indirect costs next year - $300,000
Cash Budgets
Exercise 6
From the information given below prepare a cash budget for the six months,
commencing 1st April, 20--.
Month
Food
Sales
February
15000
March
15500
April
17000
May
17800
June
23000
July
25000
August
22500
September 20400
Drink
Sales
4500
4800
5400
6300
6900
8100
7100
6550
Food
Purchases
6000
6100
6800
7000
7300
8300
7300
7100
Drink
Purchases
2200
2400
2700
3200
3400
4100
3600
3200
Labour
Cost
6000
6200
6500
6900
7500
7400
6700
6100
Overheads
5200
5200
5400
5600
5800
5700
5300
5100
Notes:
(1) Assume that all sales are cash sales;
(ii) The annual interest on the company’s investments, $800, will be received in July;
(iii) The time lag in the payment of suppliers is two months; in the payment of overheads
the time lag is one month; in the case of the labour costs it is nil;
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(iv) New kitchen plant costing $5 000 will be purchased in May and paid for the
following month;
(v) The bank balance of the company on 1st April, 20-- was $15 000.
The cash budget would be drawn up as below.
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Cash Budget
For the 6 months ending 30th of September
April
May
June
July
August
September
Opening Balance
Sources of Cash
Food Sales
Beverage Sales
Other Receipts
Total Income
Food Purchases
Drink Purchases
Labour Costs
Overheads
Other Payments
Total
Closing Balance
Exercise 7
The Leaning Tower Restaurant is a large, unlicensed restaurant and operates a
system of budgetary control. Its bank balance on 1st April, 19. ., is £8 000. From
the information given below you are to prepare a cash budget for the quarter
ending 30th June, 19.
Budgeted Sales
Feb
Cash Sales 6000
Credit
3200
Sales
Total
9200
March
6500
3500
April
7800
4200
May
8600
4400
June
10200
4500
10000
12000
13000
14700
Notes: You are informed that 80% of credit sales are settled by clients within one
month, the balance of 20% is settled with a time lag of 2 months.
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Budgeted Food Cost
The restaurant operates at a Food Cost of 40%. Thirty percent (30%) of Food
Cost represents current cash purchases. Seventy percent (70%) of Food Cost is
purchased on credit and settled in the month following purchase.
Budgeted Labour Cost
April
May
June
Kitchen Staff
1215
1415
1775
Waiting Staff
935
1075
1235
Other
550
610
610
Total
2700
3100
3620
The Time Lag in the payment of wages is Nil.
Budgeted Overheads
Jan
Rent
Rates
Depreciation
Insurance
Gas
75
Electricity
75
Telephone
10
Total
Feb
March
75
50
10
80
40
15
April
700
350
820
10
80
35
15
2010
May
700
350
820
10
85
40
15
2020
June
700
350
820
10
90
45
20
2035
Notes
The rent of the restaurant is payable in two half yearly instalments, each march
and September.
Half yearly demand notes in respect of rates are received each April and
October.
The full annual insurance premium is payable on 17th of April.
The gas electricity and telephone accounts are payable each January, April, July
and October.
The time lag in the payment of overheads is one month, this does not apply to
the insurance premium.
Exercise 8
Surjeet Singh owns Jeet’s Palace Restaurant in Booragoon, Western Australia,
and is contemplating installing a new tandoor oven at a cost of $12,000 in three
months time. Prepare a cash budget for each month for Surjeet, with a view to
advising him whether he is in a position to pay $12,000 cash for the oven in
month three.
Assume an opening bank balance of $5,000 at the beginning of the first month.
Surjeet averages $60,000 sales each month. Of these sales, 75 percent are
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received in cash in the same month and 25 percent are received in the following
month as they are credit sales from account customers. Surjeet has a ‘just in
time’ delivery policy and all purchases can be regarded as cost of goods, as a
par stock of $2,000 is the constant opening and closing stock values for each
month. Purchases amount to 25 percent of sales and are paid for in cash on
COD (cash on delivery) terms. Labour costs are $15,000 each month. A
superannuation payment of $5,200 is due in month two. An annual rates payment
of $1,200 is due in month three. Rent of $4,000 and lease payments of $1,200
are paid monthly. Quarterly energy bills of $3,800 are due in month two. Surjeet
expects to receive $1,200 from the sale of old equipment in month two.
Variance Reporting
Exercise 9
The Thirst Inn has a total of 250 rooms. The budgeted occupancy for the month
of March 2004 was 80 percent and the actual occupancy was 92 percent. The
actual labour expense of $49,569 exceeded budget by $10,509, and the
budgeted room attendant hours of 3,100 increased to 3,813. Simone Smith, the
Executive Housekeeper, has difficulty in reporting on the total labour variance of
$10,509 for the month of March 2004. Can you assist Simone in calculating the
labour volume, efficiency and compound variances, which resulted in the total
labour variance of $10,509?
Theory
Exercise 10
QUIZ QUESTIONS
1. What is a budget?
2. What are the different types of budgets?
3. Why are budgets important for a business?
4. What are some of the important factors you would consider before
allocating budget resources?
5. Preparing a budget is as important as controlling a budget. Why?
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6. How would you monitor and review financial activities against budget in a
medium to large hospitality establishment?
7. Can you identify a minimum of three options for improved budget
performance?
8. Is it possible to make a profit even if you have a deficit balance in your
cash budget? Give reasons for your answer.
9. Write short explanatory notes on:
a. Limiting Factors
b. budget period;
c. review period.
10. Distinguish clearly between the following:
a. operating budgets and capital budgets;
b. departmental budgets and master budgets;
c. fixed budgets and flexible budgets.
11. Listed below are the names of some of the commonly used budgets in the
hospitality industry. Categorise each of them into a budget type - operating
budget, departmental budget, master budget, capital budget or cash
budget:
 Room Revenue Budget
 Refurbishment Budget
 Food and Beverage Wages Budget
 Project Budget
 Event Budget
 Contract Cleaning Budget
 Printing Budget
 Marketing Budget
 Cash Budget
 Budget for a Small Business
 Advertising Budget.
12. Write short notes on how you would prepare the following:
a. sales budget;
b. cash budget;
c. maintenance budget;
d. housekeeping budget;
e. budgeted balance sheet.
Exercise 11
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CASE STUDY
The Ranch, Canberra, is an upmarket, successful chain restaurant. Its income is
higher than the chain restaurants in the other capital cities, but its labour cost is
higher and it has the lowest net profit. You have been given the task of analysing
why the labour cost is so high - the variance from the forecasted budget was
significant. You can start by looking at the relevant awards and agreements,
analysing staffing rosters and ratios, reviewing absentee and sick leave records,
and reviewing workers compensation claims and the like. Explain in detail how
you would go about developing greater efficiency and reducing the labour cost to
achieve improvement of the bottom line.
Exercise 12
The HB Hotel
The owners of the HB Hotel decide to open an associated venture—a 60-seat
seafood restaurant in the centre of the local town. They plan to invest $100 000.
This investment is comprised of $80 000 for equipment and $20 000 for working
capital (for example, purchasing stock, advertising, employing staff, and so on).
The owners seek a return of 15% on this investment (similar to the return their
hotel is achieving). They therefore plan to price the menu items so as to achieve
this result, after paying a tax liability based on a rate of 31.5%.
Calculate the average check per meal that is required, if the following
information also applies:







the cost of food will be 40% of revenue;
variable payroll costs will total 25 cents out of every dollar of revenue;
other items will be 5 cents of every dollar of revenue;
in addition to the above costs, the owners will also have to pay a chef a
regular salary that totals $35 000 a year (including all benefits);
rent for the harbourside venue is $1500 each calendar month;
all other costs not described so far come to $4000 a year;
the owners calculate that the equipment will last for five years and after
that time will be worn out and worthless, so the purchase price of the
equipment will be depreciated over the period (that is, at 20% per year);
the restaurant will be open for lunch and dinner from Tuesday to Sunday;
the amount of revenue from lunch and dinner will be about the same
amount, but twice as many people will come for lunch as for dinner.
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