FINANCE -MANAGE BUDGETS

SITXFIN003 – Manage finances within a budget

SITXFIN004- Prepare and monitor budgets

STUDENT ASSESSMENT ANSWER BOOKLET

Assessment Task 1– Written Questions

Question 1

Question 2

Question 3

Cash/Cash flow budget
Departmental budget
Event budget
Project budget
Purchasing budget
Sales budget
Wage budget.

Question 4

Bank deposit documentation

Question 5

Question 6

Question 7

Question 8

Question 9

Question 10

Question 11

Question 12

Question 13

Question 14

Question 15

Question 16

Question 17

• Define the following options and approaches to budgeting:

• Incremental budgeting

ANSWER:

• Zero-based budgeting.

ANSWER:

• Why are ‘rolling budgets’ useful in the hospitality industry?

ANSWER:

Question 18

Question 19

Question 20

Question 21

Question 22

Question 23

Working out how much to charge for food and drink.

1. Calculate the cost of a drink of vodka and soda (before taxes):
2. You will need the following to make one drink – 0.03L of vodka, 0.1L of soda, 0.02 kg of lime and one straw.
3. A litre of vodka costs $12.00, a litre of soda water costs $1.00, a pack of 140 straws costs $3.00 and 1kg of limes is $2.00. If 0.03L of vodka costs $0.36 work out the cost of the soda water, slice of lime and one straw.
4. What is the cost of the drink (ingredients only)?
5. If you wanted to make 500% on the drink how much would it be?
6. ANSWER:

• What other costs may you have to calculate into the cost of this drink? List three suggestions.

ANSWER:

• If half of the bag of limes were thrown out after being cut and not used, what is the cost of the waste?

ANSWER:

Question 24

ANSWER:

Assessment Task 2- Case-Study

Instructions

Budget review

Question 1

• Calculate the dollar deviations for room sales, food sales, liquor sales, wages, rent and overheads.

ANS:

• Calculate the percentage deviations for room sales, food sales, liquor sales, wages, rent and overheads.

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• Indicate if the identified deviations are positive or negative.

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Question 2

• Total the budgeted and actual sales for the 6 months.

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• Calculate the dollar deviations for sales on a month-by-month basis.

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• Calculate the percentage deviations for sales on a month-by-month basis.

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• Calculate year-to-date budgeted totals for sales on a month-by-month basis.

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• Calculate year-to-date actual totals for sales on a month-by-month basis.

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• Calculate the dollar deviations for YTD figures on a month-by-month basis.

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• Calculate the percentage deviations for YTD figures on a month-by-month basis.

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Question 3

Question 4

Question 5

Question 6

Question 7

Question 8

Question 9

Question 10

Question 11

Question 12

Question 13

Question 14

Assessment Task 2- Case-Study

Assessment Task 3 – Financial and Statistical Calculations

Question 1

• Opening stock for the bar: $30,000
• Closing stock for the bar: $25,000
• Requisitions to the bar: $125,000

ANS:

Question 2

• Cost of Goods Sold: $17,800
• Revenue: $41,786.

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Question 3

• Cost of Goods Sold: $55,962
• Revenue: $134,000

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Question 4

• Revenue: $15,000
• Cost of Goods Sold: $6,934

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Question 5

• Owner’s funds: $1,200,000
• Nett profit: $365,500

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Question 6

• Average current assets: $2,000,000
• Sales: $350,680

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Question 7

• Average liabilities: $450,999
• Average equities: $2,150,000

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Question 8

• Current assets: $805,000
• Current liabilities: $1,450,000
• ANS:

Question 9

• Current assets: $2,000,000
• Stock: $55,000
• Current liabilities: $1,300,000
• Bank overdraft: $45,000

ANS:

Question 10

• Total proprietorship: $375,000
• Total assets: $1,500,000

ANS:

Question 11

• Sales: $ 2,457,983
• Gross profit: $890,816

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Question 12

• Total rooms available: 1205
• Rooms occupied: 378

ANS:

Question 13

• Room revenue: $66,450
• Total rooms available: 524

ANS:

Question 14

Question 15

Question 16

Question 17

Assessment Task 4: Project

Instructions

Part A

You are the manager of a small bed and breakfast owned by Marino Enterprises. Comfy Inn is located in country Victoria and was purchased by the company two years ago when the long term owners decided to sell. The B&B was sentimental to John Marino and Betsy Smith as they used to stay there in their younger days. When it came onto the market they snapped it up. Some background on the B&B – they are a small luxury homestay property that offers seclusion, privacy and romance for an adult’s only stay. There are three cabins onsite; each fully contained. They provide a full breakfast in the main house and a full bar that is open for drinks and canapés from 4pm – 6pm on Friday, Saturday and Sunday afternoons. The bar is open at other times for snacks, coffee, tea, smoothies, soft drinks and alcohol purchases. Marino Enterprises looks after the property grounds and the manager’s wage. Everything else is the responsibility of the manager who resides onsite in the main house. Your partner is employed as the short order cook and you pay a casual cleaner. As part of the onsite manager’s role, you and your partner complete the general housekeeping duties when it is quiet. It is budget preparation time and Betsy has asked you to meet with her to discuss the details. Betsy has provided you with last year’s actual revenue received, broken down into accommodation, food and beverages.

REVENUE BUDGET – ACTUAL for 2015-2016 Comfy Inn B&B   LAST YEAR Accommodation Food Beverages TOTAL July 3,000 1,600 1,560 6,160 August 2,800 1,800 1,600 6,200 September 2,800 1,800 1,900 6,500 October 3,600 2,400 1,800 7,800 November 3,800 3,000 1,960 8,760 December 6,000 3,800 1,700 11,500 January 8,800 3,800 1,600 14,200 February 8,800 4,000 1,600 14,400 March 3,800 3,400 1,400 8,600 April 3,600 2,600 1,200 7,400 May 3,400 2,400 1,400 7,200 June 3,200 1,800 1,500 6,500 TOTAL $53,600 $32,400 $19,220 $105,220

1. You will now meet with Betsy (role played by your assessor). She will provide you with the instructions for preparing your budget and allocating costs.

You will be required to actively participate in the meeting and take notes on the detail provided (by your assessor in the role of Betsy). Have this assessment work sheet with you to record the details and be prepared to ask questions to clarify the information provided.

Your assessor will give you details on when this meeting will be held.

In the meeting, you will need to confirm (take notes as required) the following:

What budget you are responsible for.

The increases Betsy has directed you to include into the projected income budget for the next year.

• Accommodation

ANS:

• Food prices

• Beverage prices.

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Betsy will also give you some extra considerations during your meeting. Make note of them:

A sales campaign designed to attract people to the B&B for a relaxing weekend, to escape the hustle and bustle of city life will be rolled out over January, February and March and you (the assessor in the role of Betsy) have calculated that this should increase sales by 10% across those three months for accommodation, food and beverage sales. This 10% should be calculated on the increased price. (January income $8800 x 5% increase = $9240 + 10% = $10,164).

1. Betsy has also provided you with the following expenditure information that you will need to consider when preparing your cash flow budget. This data has been sourced from historical data, committed costs for the B&B and Marino Enterprises policy:

Marino Enterprises’ overheads are $2000. All individual businesses and departments pay this overhead in August of each year.

Lease payments are $1,500 monthly.

Combined insurance coverage to increase to $1,400 per year paid in two equal payments in March and September.

General repairs and maintenance to the property of $4,800 pa to be budgeted monthly.

Digital marketing and advertising costs will be $2,400 pa, payable monthly.

Charges for out-sourced laundering is $800 per month.

Electricity charges are payable every quarter as follows:

• September: $2,200
• December: $2,000
• March: $2,400
• June: $3,000.

General monthly miscellaneous expenses amount to $600/month.

You also know from your experience and the management of the property that:

You need to replace some linen and towels at the cost of $2000 and replace kitchenware consumables to the value of $1000 at some point in the year. You will need to decide when it is best to include this expenditure in your budget along with an explanation to Betsy as to why you think it is best budgeted for in those months.

The monthly cost of F&B stock is predicted to run at 40% of the food and beverage sales. You will need to calculate this cost into your projections.

The cost of labour is calculated at 25% of all monthly sales. You will need to calculate this cost into your projections.

• Betsy has asked you to enter the income and expenditure data she has given you plus your projections into your accounting system to prepare the draft revenue budget for the upcoming year. You may use an accounting software package or alternatively you could use a Microsoft Excel (or similar software) spreadsheet. If you use spreadsheet software make sure you use the headings: income, cost of sales, gross profit, expenses and operating profit. Enter the data with 0 decimal places.
• Prepare an email that you can send to the other managers at the B&B, and John Marino seeking their input and feedback. Attach your draft budget and ensure that you provide them with enough information so that they can make a judgement of how and why you have allocated funds as you have. Submit this email to your assessor as if they were one of the managers.

ANS: Email to Betsy:

Print a copy of your draft budget and submit it to your assessor (in the role of Betsy) along with a memo explaining:

• the extra expenditure for discussion and approval (beds and kitchen appliances)
• a discussion on the internal and external factors that could have an impact on the budget. Discuss at least three internal and three external factors.

ANS:

BUDGET:

Operating budget
Account Name
Accommodation
Food
Beverages
Total income
Less: Cost of sales
Stock
Gross profit
Less: expenses
Overhead
Advertising
Laundry expenses
Electricity & gas
Insurance
Property lease
Linen and towels
Kitchenware
Repairs & maintenance
Miscellaneous
Wages & salaries
Total expenses
Operating profit/loss

Part B

Betsy has come back to you with some changes to be made to the draft budget. These changes will have come via email or feedback on your hard copy draft. Betsy also thinks that you have over calculated the cost of stock and the wages at 25% is too high. She has asked you to consider options for reducing the cost of both without effecting customer service levels, the quality of product and of course the income. She has also asked you to have the final draft of the budget back to her within the week.

1. Provide at least three recommendations for changes to the budget that will satisfy Betsy’s requests in a memo. It is your responsibility to meet the budget so you can choose to make recommendations to increase income, decrease expenditure wherever you see fit or even negotiate not to make any changes to the expenditure.

Make the changes to your budget in the accounting software. Produce a final budget report and submit it to your assessor along with a memo outlining the changes you have (or have not) made with an explanation justifying your decisions. In your justifications include the advantages and disadvantages of accepting your changes. Submit your memo and report to your assessor by the due date.

ANS:

Part C

Betsy has approved your budget and you need to sit down with the short order cook to discuss the budget as they do all of the ordering and are responsible for meeting the food and beverage budget requirements. Assume that one of your recommendations to Betsy was to drop the cost of food purchases without dropping the quality. The short order cook is not happy with this decision and you need to collaborate with them to come up with the alternative options. The B&B is known for its exquisite breakfasts and currently, all food is sourced locally from individual suppliers, and where possible, organic produce. Everything is made from scratch and most items of the menu are made with fresh ingredients. The menu is as follows: Homemade bircher muesli with seasonal fruit compote and activated nuts.Baked french toast with fresh seasonal fruit and blackberry compote.Buttermilk pancakes with orange cardamom syrup.Three egg omelette with your choice of fillings – chorizo, bacon, mushrooms, spinach, feta, goat cheese, brie, blue cheese, vintage cheddar and tomatoes.Pumpkin and spinach quiche with rocket breakfast salad.Eggs benedict with your choice of ham, smoked salmon, mushrooms or bacon.Corn and zucchini fritters with a delectable potato rosti and breakfast salad and salsa.The world’s best chicken and champagne breakfast.The big breakfast with steak, pork and fennel sausages, bacon, tomatoes, mushrooms, spinach, potato rosti and toast.Avocado smash with feta and oven roasted capsicum on your choice of four different breads.Good ole’ bacon and eggs on your choice of bread. You believe that there are several ways to reduce the costs.

1. Work with one other student in the roles of manager and short order cook to discuss the final budget, explain what their role is in terms of financial management (to stay within the budget, save money where possible) and together come up with a list of at least four recommendations to reduce the costs.
2. 1. Write a memo to your assessor with your recommendations for reducing the cost of the menu. You will need to make sure that your recommendations do not have an impact on the level of customer service and the B&Bs reputation for exquisite breakfasts.

Part D

It is September and the budget is as follows:   July Budget July Actuals August Budget August Actuals INCOME         Accommodation 3150 5020 2940 3670 Food 1680 1820 1890 2040 Beverages 1638 1680 1680 1896 TOTAL REVENUE 6468 8520 6510 7606           EXPENSES         Overhead         Stock 1,327 2,100 1,428 2,300 Lease 1,500 1,500 1,500 1,500 Repairs/maintenance 400 600 400 300 Advertising 200 200 200 200 Laundry 800 1,000 800 950 Wages 1,617 1,532 1,628 1,450 Miscellaneous 600 560 600 400 TOTAL EXPEND. 6,444 7,492 6,556 7,100           +/- 24 1,028 -46 506 Cash on hand: start 10,000 10,000 10,024 11,028 Cash on hand: end 10,024 11,028 9,978 11,534   You as the manager and the small order cook have agreed to speak to your fruit and vegetable supplier to see if there are any possibilities of reducing the cost of your purchases. You want to reduce your delivery from 4 days per week to twice a week and rather than telling them what fruit and vegetables you want, you are requesting them to select the best quality for the cheapest price, ie the cheapest on the day. Also as part of cost savings you have had to make the decision to move away from local suppliers of shelf items such as porridge, flour, herbs and spices, sugar, etc. Now that Costco has opened you have the option of buying in bulk. You have calculated that this will save you approximately $3,000 – $4,000 per year.

Enter the above budget income and expenditure amounts for July and August to produce a suitable report.

As the manager you have been trying to cut costs in wages by doing the housekeeping yourself during the week and on Saturdays. While you have made savings you have run yourself into the ground and are exhausted. It has also meant that customer service has suffered because you are running from the office to the cabins during the two to three hour cleaning window while customers wait. Sales have been up with accommodation running at 92% occupancy over the past four months. You want to bring the casual housekeeper back in for 7 days per week. This will add approx. $4000 to your monthly expenditure.

• a communication to Betsy regarding your evaluation of the budget – how you are feeling, how in your effort to reduce expenditure, this has caused a slump in customer service, your recommendations for changes to the budget and the impact that the changes will have – positive and negative. You will need to
  • Draft a communication to Betsy regarding your evaluation of the budget – how you are feeling, how in your effort to reduce expenditure, this has caused a slump in customer service, your recommendations for changes to the budget and the impact that the changes will have – positive and negative. You will need to influence Betsy so ensure you demonstrate that your month-to-date actuals are ahead of budget and how you are saving money. Include your report in your communication to Betsy.

ANS:

Memo to Betsy:

Part E

It’s the beginning of November and the following income and expenses are for October. Invoices received: Patches Fruit and Veg $522 Dan Murphy’s $160 Laman’s Meats $340 Olsen Laundry $400   Receipts: Costco $178   Credit Card Payments (guests): C. James $590 Accom 300 Food 230 Bev 60 F. Dunkertin $1140 Accom 600 Food 420 Bev 120 M. Tan $792 Accom 450 Food 286 Bev 56 J. Kelly $1074 Accom 300 Food 410 Bev 364 L. Keen $760 Accom 450 Food 310 Bev 0 B. Smith $214 Food 214   The last two months have seen some changes. There was a major hail storm in the area which caused damage to one of the cabins. The storm caused a lot of damage and the cabin has been uninhabitable for 5 weeks across September and October. The occupancy rate has dropped to 69%. The insurance company is paying for the majority of the damage but $5,000 will need to be paid out of pocket.

	September Budget	September Actuals	October Budget	October Actuals
INCOME
Accommodation	2,940	2,028	3,780
Food	1,890	1,228	2,520
Beverages	1,995	1,296	1,890
TOTAL REVENUE	6,825	4,552	8,190
EXPENSES
Overhead	0	0	0	0
Stock	1,554	1,180	1,764
Lease	1,500	1,500	1,500	1,500
Insurance	700	700	0	0
Repairs/maintenance	400	380	400
Advertising	200	200	200	200
Electricity	2,200	2,200	0	0
Laundry	800	500	800
Wages	1,706	3,300	2,048	2,800
Miscellaneous	600	290	600	700
TOTAL EXPEND.	9,660	10,250	7,312
+/-	-2,835	-5,698	878
Cash on hand: start	9,978	11,534	7,143
Cash on hand: end	7,143	5,836	8,021

1: Use the information above to update the budget in the blank cells.

2:   Create a report outlining the cash flow and submit it to your assessor with an explanation of how you might recover from the deficit this month. Make at least two recommendations for cash recovery in September/October.

ANS:

Cash Flow Report:

Part F

It is the end of December and the actual cash amount is down 53% on the original projection. A large contributing factor is that income targets have not been met and the food and beverage budgets have been over spent by 20%. Betsy has asked you to come up with recommendations to solve the income problem, forecast for the remaining six months of the financial year and communicate the new targets and the importance of meeting budgets to the cook. The good news is that you have heard through the grapevine that there are a number of events happening in the region in the last half of the year. These are weekday tourism events and there are a number of big construction projects where employees drive-in and drive-out for shifts Monday to Friday.

1. What sources of information might you need to set realistic projections for the rest of the year, including finding out more information about what is coming up in the region? Make a list of at least four people or places you could seek information from.

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• Write a memo or email to Betsy and the Cook at the B&B outlining the answers to the above questions and including a discussion aimed at the cook about the importance of meeting budget restrictions, what the cook should do if they are having trouble meeting the budget or find it challenging keeping relationships with suppliers. Submit your memo to your assessor in the role of Betsy.

ANS:

Memo to Betsy:

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