Matakuliah
Tahun
: V0282 - Manajemen Akuntansi Hotel
: 2009 - 2010
The Income Statement
Chapter 3
Chapter Outline
•
•
•
The Purpose of the Income Statement
Income Statement Preparation
Income Statement Analysis
Learning Outcomes
•
•
•
State the purpose of regularly preparing an income
statement for a hospitality business.
Explain the way managers and accountants actually
prepare an income statement.
Analyze an income statement to improve the operation
of your own business.
The Purpose of the Income Statement
•
When you manage a hospitality facility, you will receive
– Revenue, the term used to indicate the money you
take in, and you will incur
– Expenses, the cost of the items required to operate
the business.
– The dollars that remain after all expenses have been
paid represent your profit.
Revenue – Expenses = Profit
The Purpose of the Income Statement
•
•
•
•
Many hospitality managers call each individual revenue
generating segment within their business a profit center.
The revenue-expense = profit formula holds even in
what is not typically considered a for-profit segment of
the hospitality industry.
In many business dining situations, food is provided as
a service to the company’s employees either as a nocost (to the employee) benefit or at a greatly reduced
price.
Thus, it is common in many situations to operate a cost
center that generates costs but no revenue.
The Purpose of the Income Statement
•
All stakeholders who are affected by a business’s
profitability will care greatly about the effective operation
of a hospitality business.
–
–
–
–
–
•
Owners
Investors
Lenders
Creditors
Managers
When an accurate income statement is used to provide
information, the business’s owners, lenders, investors
and managers can all make better decisions about how
best to develop and operate it.
Return on Investment
•
•
•
Investors are particularly interested in return on
investment (ROI), which measures the quality or
strength of an investment.
The income statement is the source of the information
required to determine the numerator of the ROI
calculation.
ROI is computed as follows:
Money earned on funds invested
Funds invested
= ROI
Income Statement Preparation
•
•
•
In very small hospitality operations, the owner or
managers of the business may be responsible for the
preparation of the income statement.
In larger restaurant chain operations, the manager may
submit financial data to a centralized accounting office,
which would then prepare the unit’s income statement.
In very large restaurants and in many hotels, the
income statement may be prepared by professionals
who work on-site.
Format of the Income Statement
•
•
An income statement is designed to identify revenues,
expenses, and profits and is a summary of financial
information for a defined accounting period.
In its very simplest structure, the income statement
appears as follows:
Figure 3.1 Summary of Financial Information
Blue Lagoon Water Park Resort
Income Statement
For the Period: January 1 through January 31, 2010
Revenues
$ 2,100,150
Expenses
$ 1,937,976
Income (Loss) Before Income Taxes
$
162,174
Format of the USAR
•
•
A restaurant income statement, using the Uniform
System of Accounts for Restaurants (USAR), shows
sales and cost of sales related to food and beverage
and any other expenses related to the functioning of the
restaurant.
Figure 3.2 shows the restaurant income statement
using the USAR.
Figure 3.2 Restaurant Income Statement
Joshua’s Restaurant
Income Statement
For the Year Ended December 31, 2010
SALES:
Food
Beverage
Total Sales
COST OF SALES:
Food
Beverage
Total Cost of Sales
GROSS PROFIT:
Food
Beverage
Total Gross Profit
OPERATING EXPENSES:
Salaries and Wages
Employee Benefits
Direct Operating Expenses
Music and Entertainment
Marketing
Utility Services
Repairs and Maintenance
Administrative and General
Occupancy
Depreciation
Total Operating Expenses
Operating Income
Interest
Income Before Income Taxes
Income Taxes
Net Income
Prepared using USAR
2,058,376
482,830
2,541,206
767,443
96,566
864,009
1,290,933
386,264
1,677,197
714,079
111,813
132,143
7,624
63,530
88,942
35,577
71,154
120,000
55,907
1,400,769
276,428
84,889
191,539
76,616
114,923
Format of the USAR
•
The USAR can be divided into three sections arranged
on the income statement from most controllable to least
controllable by the foodservice manager.
– The gross profit section consists of food and
beverage sales and costs that can and should be
controlled by the manager on a daily basis.
– The operating expenses section is also under the
control of the manager but more so on a weekly or
monthly basis (with the exception of wages, which
you can control daily).
– The nonoperating expenses section is least
controllable by the foodservice manager and includes
Format of the USALI
•
•
•
A hotel income statement, using the Uniform System of
Accounts for the Lodging Industry (USALI), shows sales
and cost of sales related to rooms and non-rooms
departments and any other expenses related to the
functioning of the hotel.
Figure 3.3 shows the hotel income statement using a
vertical format.
Figure 3.4 shows the hotel income statement using a
horizontal format.
Figure 3.3 Hotel Income Statement – Vertical Format
Blue Lagoon Water Park Resort
Income Statement
For the Period: January 1 through January 31, 2010
Total Revenue
Rooms - Revenue
Payroll and Related Expenses
Other Expenses
Department Income
Food - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Beverage - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Telecommunications - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Other Operated Departments - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Rentals and Other Income - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
2,100,150
1,200,000
247,200
105,900
846,900
600,000
178,200
182,400
44,400
195,000
240,000
37,620
44,580
16,800
141,000
6,000
14,100
4,500
2,400
-15,000
45,000
6,600
15,000
5,400
18,000
9,150
1,320
4,080
900
2,850
Total Operated Department Income
1,188,750
(Figure 3.3 continued)
Total Operated Department Income
1,188,750
Undistributed Operating Expenses
Administrative and General
Information Systems
Human Resources
Security
Franchise Fees
Transportation
Marketing
Property Operations and Maintenance
Utility Costs
Total Undistributed Operating Expenses
113,100
29,700
48,600
23,100
0
27,900
129,360
99,750
89,250
560,760
Gross Operating Profit
627,990
Rent, Property Taxes, and Insurance
Depreciation and Amortization
146,700
105,000
Net Operating Income
376,290
Interest
106,000
Income Before Income Taxes
270,290
Income Taxes
108,116
Net Income
162,174
Prepared using USALI
Figure 3.4 Hotel Income Statement – Horizontal Format
Blue Lagoon Waterpark Resort
Income Statement
For the Period: January 1 through January 31, 2010
Net
Revenue
Operated Departments
Rooms
Food
Beverage
Telecommunications
Other Operated Departments
Rentals and Other Income
Total Operated Departments
1,200,000
600,000
240,000
6,000
45,000
9,150
2,100,150
Cost of
Sales
0
178,200
37,620
14,100
6,600
1,320
237,840
Undistributed Operating
Expenses
Administrative and General
Information Systems
Human Resources
Security
Franchise Fees
Transportation
Marketing
Property Operations and
Maintenance
Utility Costs
Total Undistributed Operating
Expenses
Gross Operating Profit
Rent, Property Taxes, and
Insurance
Depreciation and Amortization
Net Operating Income
Interest
Income Before Income Taxes
Income Taxes
Net Income
Prepared using USALI
2,100,150
237,840
Payroll and
Related
Expenses
Other
Expenses
Income
(Loss)
247,200
182,400
44,580
4,500
15,000
4,080
497,760
105,900
44,400
16,800
2,400
5,400
900
175,800
846,900
195,000
141,000
-15,000
18,000
2,850
1,188,750
76,800
12,000
43,800
16,620
0
4,200
64,320
36,300
17,700
4,800
6,480
0
23,700
65,040
113,100
29,700
48,600
23,100
0
27,900
129,360
24,300
0
75,450
89,250
99,750
89,250
242,040
318,720
560,760
739,800
494,520
627,990
146,700
105,000
376,290
106,000
270,290
108,116
162,174
Format of the USALI
•
The USALI can be divided into three sections arranged on
the income statement from most controllable to least
controllable by the hotel manager.
– The operated department income section consists of
separate profit centers as department income. Each
department reports revenues, expenses, and income.
– The undistributed operating expenses section covers
Undistributed Operating Expenses through Gross
Operating Profit and includes expenses that cannot truly
be assigned to one specific department.
– The nonoperating expenses section is least controllable
by the hotel manager and includes items such as
depreciation, interest, and income taxes.
Depreciation
•
•
•
•
It is important to note here that depreciation expense in
all forms of the income statement serves a very specific
purpose.
Depreciation is a method of allocating the cost of a fixed
asset over the useful life of the asset.
Depreciation is subtracted from the income statement
primarily to lower income, thus lower taxes.
The portion of assets depreciated each year is
considered “tax deductible” because it is subtracted on
the income statement before taxes are calculated.
Accounting Period
•
•
•
•
For many businesses, the accounting periods
established coincide with the calendar months of the
year.
In some cases, businesses prefer to create income
statements that are 28 days long.
This helps the manager compare performance from one
period to the next without having to compensate for
“extra days” in any one period.
Businesses may also elect to create income statements
bi-monthly, quarterly, annually, weekly, daily, or even
hourly.
Revenue Data
•
•
The first portion of the income statement details the
revenue data to be reported during the identified
accounting period.
Hotel revenue categories include:
–
–
–
–
–
–
–
Rooms
Food
Beverage
Telecommunications
Garage and Parking
Golf Course
Golf Pro Shop
–
–
–
–
–
–
–
Guest Laundry
Health Center
Swimming Pool
Tennis
Tennis Pro Shop
Other Operated Departments
Rentals and Other Income
Expense Timing
•
•
•
•
Accrual accounting requires a business’s revenue to be
reported when earned and its expenses to be recorded
when incurred.
This matching principle is designed to closely tie
expenses of a business to the actual revenues those
expenses helped the business generate.
The consistency principle of accounting requires
managers to be uniform in decision making.
That is, if an expense is treated in a specific manner in
one instance, it should be treated in an identical manner
in all subsequent situations.
Expense Classification
•
•
•
Expense classification is the process of carefully
considering how a business’s expenses will be detailed
for reporting purposes.
In the hotel industry, when an expense is easily
attributable to one department, it is classified as a
departmental cost. This type of cost is sometimes
referred to as a direct operating expense.
When the expense cannot truly be assigned to one
specific area within an operation, it is classified as an
undistributed operating expense.
Schedules
•
•
•
In addition to income statement summaries, managerial
accountants may use one or more departmental
schedules to provide statement readers with more indepth information about important areas of revenues
and expenses.
A hotel income statement may consist of a summary
with reference to one or more departmental schedules
that will provide additional detail.
In the food and beverage revenue area, schedules may
be created based upon the sales and expenses
achieved by restaurants and bars.
Figure 3.7 Income Statement with Revenue Schedules Identified
Blue Lagoon Water Park Resort
Income Statement
For the Period: January 1 through January 31, 2010
Revenues:
Rooms (Schedule 1)
Food (Schedule 2)
Beverage (Schedule 3)
Telecommunications (Schedule 4)
Other Operated Departments (Schedule 5)
Rentals and Other Income (Schedule 6)
Total Revenues
$ 1,200,000
$ 600,000
$ 240,000
$
6,000
$
45,000
$
9,150
$ 2,100,150
Expenses
$ 1,937,976
Income (Loss) Before Income Taxes
$
162,174
Figure 3.8 Rooms Department Revenue Schedule
Blue Lagoon Water Park Resort
Schedule 1: Rooms Department Revenue
For the Period: January 1 through January 31, 2010
Rooms Revenue:
Transient Leisure
Group Leisure
Transient Package
Group Package
Total
$ 600,000
$ 390,000
$ 150,000
$
60,000
$ 1,200,000
Figure 3.9 Principles of Income Statement Preparation
A properly prepared income statement:
1. Clearly identifies the business whose revenues and expenses are being
summarized
2. Plainly states the specific accounting period for which the statement has been
prepared
3. Includes a summary, in the most informative (detailed) manner practical, of all
the revenue generated by the business during the accounting period
4. Summarizes all accounting period expenses utilized by the business to
generate the stated revenue
5. Utilizes a logical and consistent system to classify expenses
6. Provides additional clarity via the use of schedules where appropriate
7. Incorporates the use of a uniform system of accounts if applicable
Income Statement Analysis
•
•
•
Managers analyze income statements to help them
better understand, and thus better manage, their
business.
A manager will be primarily interested in the revenues,
expenses, and profits over which he or she has primary
control.
The income statement is naturally divided into three
main parts that should be analyzed:
– Revenue
– Expenses
– Profit
Revenue Analysis
•
When restaurant managers seek to increase revenue,
they must do so by:
– Increasing the number of guests served, and/or
– Increasing the average amount spent by each guest.
•
When hotel managers seek to increase rooms revenue,
they must do so by:
– Increasing the number of rooms sold, and/or
– Increasing the average daily rate (ADR) for the rooms it sells.
Revenue Analysis
•
Additional factors to be considered when making a
complete evaluation of revenue increases include:
– The number of days included in the accounting
period
– Changes in the number of high or low volume days
included in the accounting period
– Differences in date placement of significant holidays
(i.e. month or day of week)
– Changes in selling prices
– Variations in operational hours
Expense Analysis
•
•
•
Guests cause businesses to incur costs. If there are
fewer guests, there are likely to be fewer costs, but
fewer profits as well!
The real question to be considered is not whether costs
are high or low.
The question is whether costs are too high or too low,
given management’s view of the value it hopes to
deliver to the guest and the goals of the operation’s
owners.
Profit (Loss) Analysis
•
•
•
Profit can be considered, to a large degree, the ultimate
measure of the ability of hospitality professionals to plan
and operate a successful business.
Net income, or profit, is sometimes known as the
“bottom line”, because it is often the “bottom-most” line
on an income statement.
In a properly prepared income statement, it represents
the difference between all recorded revenue
transactions and all recorded expense transactions.
Profit (Loss) Analysis
•
•
For most hospitality managers, the “bottom line” is not
the most important number on the income statements
they will generate.
Hospitality managers (as opposed to the business’s
owners) may concern themselves most about income
that remains after subtracting the expenses they can
actually control.
Vertical Analysis
•
•
•
•
Vertical analysis compares all items on the income
statement to revenues using percentages. In this
approach, an operation’s total revenue figure takes a
value of 100%.
When utilizing vertical analysis, individual sources of
revenue and the operation’s expenses are expressed
as a fraction of total revenues.
Each percentage computed is a percent of a “common”
number. As a result, vertical analysis is also sometimes
referred to as common-size analysis.
Figures 3.11 and 3.12 show vertical analysis of a hotel
income statement and a restaurant income statement,
respectively.
Figure 3.11 Vertical Analysis of a Hotel Income Statement
Blue Lagoon Water Park Resort
Income Statement
For the Period: January 1 through January 31, 2010
Dollars
%
Total Revenue
Rooms - Revenue
Payroll and Related Expenses
Other Expenses
Department Income
Food - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Beverage - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Telecommunications - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Other Operated Departments - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
Rentals and Other Income - Revenue
Cost of Sales
Payroll and Related Expenses
Other Expenses
Department Income
2,100,150
1,200,000
247,200
105,900
846,900
600,000
178,200
182,400
44,400
195,000
240,000
37,620
44,580
16,800
141,000
6,000
14,100
4,500
2,400
-15,000
45,000
6,600
15,000
5,400
18,000
9,150
1,320
4,080
900
2,850
100.0
57.1
11.8
5.0
40.3
28.6
8.5
8.7
2.1
9.3
11.4
1.8
2.1
0.8
6.7
0.3
0.7
0.2
0.1
-0.7
2.1
0.3
0.7
0.3
0.9
0.4
0.1
0.2
0.0
0.1
Total Operated Department Income
1,188,750
56.6
(Figure 3.11 continued)
Total Operated Department Income
1,188,750
56.6
Undistributed Operating Expenses
Administrative and General
Information Systems
Human Resources
Security
Franchise Fees
Transportation
Marketing
Property Operations and Maintenance
Utility Costs
Total Undistributed Operating Expenses
113,100
29,700
48,600
23,100
0
27,900
129,360
99,750
89,250
560,760
5.4
1.4
2.3
1.1
0.0
1.3
6.2
4.7
4.2
26.7
Gross Operating Profit
627,990
29.9
Rent, Property Taxes, and Insurance
Depreciation and Amortization
146,700
105,000
7.0
5.0
Net Operating Income
376,290
17.9
Interest
106,000
5.0
Income Before Income Taxes
270,290
12.9
Income Taxes
108,116
5.1
Net Income
162,174
7.7
Prepared using USALI
Figure 3.12 Vertical Analysis of a Restaurant Income Statement
Joshua’s Restaurant
Income Statement
For the Year Ended December 31, 2010
Dollars
SALES:
Food
Beverage
Total Sales
COST OF SALES:
Food
Beverage
Total Cost of Sales
GROSS PROFIT:
Food
Beverage
Total Gross Profit
OPERATING EXPENSES:
Salaries and Wages
Employee Benefits
Direct Operating Expenses
Music and Entertainment
Marketing
Utility Services
Repairs and Maintenance
Administrative and General
Occupancy
Depreciation
Total Operating Expenses
Operating Income
Interest
Income Before Income Taxes
Income Taxes
Net Income
Prepared using USAR
$2,058,376
482,830
2,541,206
%
81.0%
19.0
100.0
767,443
96,566
864,009
37.3
20.0
34.0
1,290,933
386,264
1,677,197
62.7
80.0
66.0
714,079
111,813
132,143
7,624
63,530
88,942
35,577
71,154
120,000
55,907
1,400,769
276,428
84,889
191,539
76,616
114,923
28.1
4.4
5.2
0.3
2.5
3.5
1.4
2.8
4.7
2.2
55.1
10.9
3.3
7.5
3.0
4.5
Vertical Analysis
•
For example, when a hotel’s accountant reports the costs
of the hotel’s food department, these are commonly
expressed as a percentage of total hotel revenue.
go figure!
When analyzing the Blue Lagoon Water Park Resort income statement as
presented in Figure 3.11, managerial accountants would compute the food cost
(food cost of sales) as a percentage of total revenue.
Thus:
Food Costs (Food Cost of Sales) = Food Cost%
Total Revenue
or
$ 178,200
$ 2,100,150 = 8.5%
Vertical Analysis
•
•
In a restaurant income statement, all ratios are
calculated as a percentage of total sales except the
following:
– Food costs are divided by food sales.
– Beverage costs are divided by beverage sales.
– Food gross profit is divided by food sales.
– Beverage gross profit is divided by beverage sales.
In restaurants, food and beverage items use their
respective food and beverage sales as the denominator
so that these items can be evaluated separately from
total sales.
go figure!
When analyzing Joshua’s income statement as presented in Figure 3.12,
managerial accountants would compute his food cost percentage as a
percentage of “food” sales, rather than “total” sales.
Thus:
Food Costs = Food Cost %
Food Sales
or
$ 767,443
$ 2,058,376 = 37.3 %
Vertical Analysis
•
•
Vertical analysis may be used to compare a unit’s
percentages with industry averages, budgeted
performance, other units in a corporation, or
percentages from prior periods.
Profit margin is the most telling indicator of a manager's
overall effectiveness at generating revenues and
controlling costs in line with forecasted results.
go figure!
As can be seen in Figure 3.12, profits for Joshua’s refer to the net income figure
at the bottom of his income statement. Joshua's net income for this year was
$114,923 and his total sales for this year were $2,541,206. His profit percentage
using the profit margin formula is as follows:
Net Income
Total Sales = Profit margin
or
$114,923
$2,541,206 = 4.5%
Vertical Analysis
•
•
In both the USAR and USALI, an important objective is
that of responsibility accounting for each separate
department.
It is important for upper management to know how each
department is performing, so individual department
managers can be held responsible for their own efforts
and results.
Vertical Analysis
•
•
•
Expenses should increase when increased revenues
require management to provide more products or labor
to make the sale.
If expenses are reduced too much, the effect on
revenue can be both negative and significant.
Managers analyzing the expense portion of an income
statement should be most concerned about the
relationship between revenue and expense (vertical
analysis) and less concerned about the total dollar
amount of expense.
Vertical Analysis
•
•
•
As a professional hospitality manager, you can do even
more to analyze expenses in each line item.
Figure 3.13 expresses each direct operating expense
as a percentage of total direct operating expenses.
This is a form of vertical analysis because the common
denominator for all expense % calculations is total
direct operating expenses.
Figure 3.13 Vertical Analysis - Direct Operating Expenses Schedule
Joshua’s Restaurant
Direct Operating Expenses Schedule
For the Year Ended December 31, 2010
Type of Expense
Uniforms
Laundry and Linen
China and Glassware
Expense $
13,408
40,964
22,475
Silverware
Kitchen Utensils
Kitchen Fuel
Cleaning Supplies
Paper Supplies
Bar Expenses
Menus and Wine Lists
3,854
9,150
2,542
10,571
2,675
5,413
6,670
Exterminating
Flowers and
Decorations
Licenses
Total Direct Operating
Expenses
1,803
9,014
3,604
132,143
% of Direct
Operating
Expenses
Notes
10.2
31.0
17.0 Expense is higher than
budgeted because
china shelf collapsed on
March 22.
2.9
6.9
1.9
8.0
2.0
4.1
5.1 Expense is lower than
budgeted because the
new wine supplier
agreed to print the wine
lists free of charge.
1.4
6.8
2.7
100.00
Vertical Analysis
•
For example, the $40,964 expended for laundry and
linen comprises 31.0% of all direct operating expenses.
go figure!
The formula utilized to compute the percentage in this example is:
Specific Expense
Total Expenses
= Specific Expense %
or
Laundry and Linen Expense
Total Direct Operating Expenses = Laundry and Linen Expense %
or
$40,964
$132,143
= 31.0%
Horizontal Analysis
•
•
•
Managers can utilize horizontal analysis (also called
comparative analysis) to evaluate the dollars or
percentage change in revenues, expenses, or profits.
A horizontal analysis of income statements requires at
least two different sets of data.
Managers may be concerned with comparisons such as:
– Current period results vs. prior period results
– Current period results vs. budgeted (planned) results
– Current period results vs. the results of similar
business units
– Current period results vs. industry averages
Figure 3.14 Comparative Analysis of a Restaurant Income Statement
Joshua’s Restaurant
Income Statements
For the Years Ended December 31, 2009 and 2010
SALES:
Food
Beverage
Total Sales
COST OF SALES:
Food
Beverage
Total Cost of Sales
GROSS PROFIT:
Food
Beverage
Total Gross Profit
OPERATING EXPENSES:
Salaries and Wages
Employee Benefits
Direct Operating Expenses
Music and Entertainment
Marketing
Utility Services
Repairs and Maintenance
Administrative and General
Occupancy
Depreciation
Total Operating Expenses
Operating Income
Interest
Income Before Income Taxes
Income Taxes
Net Income
Prepared using USAR
2009
2010
$ Change
% Change
$1,891,011
415,099
2,306,110
$2,058,376
482,830
2,541,206
167,365
67,731
235,096
8.9
16.3
10.2
712,587
94,550
807,137
767,443
96,566
864,009
54,856
2,016
56,872
7.7
2.1
7.0
1,178,424
320,549
1,498,973
1,290,933
386,264
1,677,197
112,509
65,715
178,224
9.5
20.5
11.9
641,099
99,163
122,224
2,306
43,816
73,796
34,592
66,877
120,000
41,510
1,245,383
253,590
86,750
166,840
65,068
101,772
714,079
111,813
132,143
7,624
63,530
88,942
35,577
71,154
120,000
55,907
1,400,769
276,428
84,889
191,539
76,616
114,923
72,980
12,650
9,919
5,318
19,714
15,146
985
4,277
0
14,397
155,386
22,838
(1,861)
24,699
11,548
13,151
11.4
12.8
8.1
230.6
45.0
20.5
2.8
6.4
0.0
34.7
12.5
9.0
(2.1)
14.8
17.7
12.9
Determining Variance
•
•
•
The variance shows changes from previously
experienced levels, and will give you an indication of
whether your numbers are improving, declining, or
staying the same.
All dollar variances and percentage variances of
expenses on the income statement can be calculated in
the same way.
The comparative income statement helps managers
analyze their expenses and take corrective action if it is
needed.
go figure!
To calculate the variance, Joshua would use the following formula:
Sales This Year – Sales Last Year =Variance
or
$2,541,206 - $ 2,306,110 = $235,096
Effective managers are also interested in computing the percentage variance,
or percentage change, from one time period to the next. Thus, Joshua’s sales
percentage variance is determined as follows:
(Sales This Year –Sales Last Year)
Sales Last Year
= Percentage Variance
or
($2,541,206 - $2,306,110)
$2,306,110
= 10.2%
(go
figure! continued)
Of course, an alternative and shorter formula for computing the percentage
variance is as follows:
Variance
Sales Last Year
= Percentage Variance
or
$235,096
$2,306,110
= 10.2%
Another way to compute the percentage variance is to use a math shortcut, as
follows:
Sales This Year
Sales Last Year
–1
= Percentage Variance
–1
= 10.2%
or
$2,541,206
$2,306,110)
Determining Variance from Budget
•
There are two basic formulas used by managers to
compare actual expenditures to budgeted expenditures.
These are:
– Variation (in dollars) from budget
– Percent of variation from budget
•
For example, Figure 3.16 shows a comparative analysis
for the Property Operations and Maintenance Schedule
for the Blue Lagoon.
Figure 3.16 Comparative Analysis - Property Operations and Maintenance Schedule
Blue Lagoon Water Park Resort
Property Operations and Maintenance Schedule
For the Period: January 1 through January 31, 2010
Difference
$
%
Budget
Actual
Payroll and Related Expenses
Chief Engineer
Engineer Assistants
Benefit Allocation
Total Payroll and Related Expenses
$ 4,800
12,060
6,840
$23,700
$ 4,711
12,089
7,500
$24,300
(89)
29
660
600
(1.9)
0.2
9.6
2.5
Other Expenses
Computer Equipment
Equipment Rental
Electrical & Mech. Equipment
Elevators
Elevator Repairs
Engineering Supplies
Floor Covering
Furniture
Grounds
HVAC (heating/ventilation and air conditioning.)
Kitchen Equipment
Laundry Equipment
Light Bulbs
Maintenance Contracts
Operating Supplies
Painting & Decorating
Parking Lot
Pest Control
Plants & Interior
Plumbing & Heating
Refrigeration & A/C
Signage Repair
Snow Removal
Travel & Entertainment
Telecommunications
Trash Removal
Uniforms
Total Other Expenses
$1,200
3,900
9,000
2,520
420
1,350
600
9,000
3,000
9,000
300
450
900
4,200
480
1,500
1,800
1,200
885
4,500
5,460
300
6,000
1,200
600
1,800
1,650
$73,215
$1,695
4,200
8,490
2,520
840
1,050
0
11,460
3,360
8,550
534
336
900
3,948
477
852
2,568
1,290
888
5,340
5,880
0
5,910
570
528
1,680
1,584
$75,450
495
300
(510)
0
420
(300)
(600)
2,460
360
(450)
234
(114)
0
(252)
(3)
(648)
768
90
3
840
420
(300)
(90)
(630)
(72)
(120)
(66)
2,235
41.3
7.7
(5.7)
0.0
100.0
(22.2)
(100.0)
27.3
12.0
(5.0)
78.0
(25.3)
0.0
(6.0)
(0.6)
(43.2)
42.7
7.5
0.3
18.7
7.7
(100.0)
(1.5)
(52.5)
(12.0)
(6.7)
(4.0)
3.1
Total Property Operations and Maintenance
$96,915
$99,750
2,835
2.9
go figure!
Thus, for example, (from Figure 3.16) in the area of computer equipment, the
variation (in dollars) from budget for the Blue Lagoon’s Property Operations and
Maintenance department would be computed as:
Actual Expense – Budgeted Expense =Variance
or
$1,695- $1,200 = $495
Some managers prefer to express variations from budget in percentage terms.
Thus, the percentage variance for computer equipment is determined as follows:
(Actual Expense –Budgeted Expense)
Budgeted Expense
= Percentage Variance
or
($1,695 - $1,200)
$1,200
= 41.3%
(go
figure! continued)
Of course, an alternative and shorter formula for computing the percentage
variance is as follows:
Variance
Budgeted Expense = Percentage Variance
or
$495
$1,200 = 41.3%
Another way to compute the percentage variance is to use a math shortcut, as
follows:
Actual Expense
Budgeted Expense
– 1 = Percentage Variance
or
$1,695
$1,200
– 1 = 41.3%
Determining Variance from Budget
•
•
•
If our budget was accurate, and we are within
reasonable limits of our budget, we are said to be in-line
or in compliance with our budget.
If, as management, we decided that plus (more than) or
minus (less than) a designated percentage (such as
10%) of budget in each category would be considered
in-line or acceptable, we are in-line with regard to
expenses.
A significant variation is any variation in expected costs
that management feels is a case for concern.
Review of Learning Outcomes
•
•
•
State the purpose of regularly preparing an income
statement for a hospitality business.
Explain the way managers and accountants actually
prepare an income statement.
Analyze an income statement to improve the operation
of your own business.