Prepare and Monitor Budgets: Draft and Final Budget Guide

Assessment 2 Unit Code: SITXFIN004 Unit Name: Prepare and monitor budgets 1 DC No. 5485

Assessment 2: Project/Scenario Your Task: Task 1: You are required to complete a draft budget based on information and factors that were determined during an executive meeting at Hotel Futura. A. Access the excel spreadsheet named “Task 1-Hotel Futura Budget_Forecast”. The first tab on this spreadsheet is labelled “Departments Small” and shows the existing budget figures for the 2016 financial year. 2 DC No. 5485

UMANG ARORA DC5462 B. Use the template “Draft Budget” on the second tab of the spreadsheet and perform the calculations below using basic formulas. The following dollar amounts and percentage changes will be used to evaluate the accuracy of your prediction. Each line item in the Expenses Analysis for the respective department must have the corresponding percentage amount displayed. You've spoken with the leaders of the various departments at Hotel Futura, and you've used the following information to build a preliminary 2017 budget: 1. Rooms Division: a. The number of available rooms has dropped from 100% to 96% because to refurbishment. b.Previously projected occupancy has been lowered to 80%. c. It is necessary to raise the rate per available room to $150. d.Cost of goods sold will rise to 15% of income from guests. e. As a result of rising superannuation and award costs, it is necessary to raise staff expenses to 20 percent of total room income. f. Elevated power costs necessitate an increase in Other Expenses to the tune of 8% of Total Room Revenue. 2. Catering: a. A fresh advertising strategy and curated menus will boost food sales by 15%. b. There will be an eight percent rise in earnings from soft drinks. c. Compensation has to rise to 44% of the total food expenditures. d. The current 6% allocation to Other Expenses needs to be raised to 7%. 3. Banquet: The new advertising effort targets daytime seminars and corporate activities, which will have an indirect impact on the Banquet Division. Numerous combi steamers, hold-o-mats, and sous- vide devices were added to the kitchen specifically for this reason.  The budget for food and drink was raised by 75%, to $2,000,000.00, and $2,000,000.00 was established as the new food revenue goal.  Our Cost of Goods Sold will go up to 26%.  Inflation-adjusted staffing expenses are now down to 19%.  Adding 14% to "Other Expenses" is necessary. 4. Room Service: a. It is necessary to boost room service food sales by 15%. b. With the new method in place for floor cleaning and shipment coordination, labour expenses may be cut by 34 percent. 5. Mini Bar: Even though labour expenses have gone up, the small bar budget has stayed the same because of creative cost shifting. 6. Bar Budget: a. The introduction of a Tapas Menu has allowed for a 25% increase in the allocated budget for food sales.

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b. With the addition of a new cocktail bar and happy hour discounts, the budget for beverage sales has been boosted by 20%. c. Bringing down payroll expenses to 36% is necessary. d. The current rate of Other Expenses is just 12% and needs to be raised to 18%.

Part B Your Tasks: You have provided the chief financial controller with the draft budget for 2017. Following the recent executive meeting where the draft budget was discussed, you are now required to establish the final budget reflecting the changes based on the latest actuals and variances as well as major road works which will affect Futura Restaurant and Bar during 2017. 1. Access the excel spread sheet named “Task 2-Budget Futura_Rest.&Bar”. The first tab on this spreadsheet is labelled “Futura Restaurant and Bar” and shows the Draft budget figures for the 2017 financial yea 2. Use the template “Revised Budget” on the second tab of the spreadsheet and perform the calculations below using basic formulas based on the following changes:

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1. Calculate the anticipated Food revenue for each month and the yearly total. 2. Calculate the anticipated Beverage revenue per month and the yearly total.

3. Calculate the Total Revenue for each month and the yearly total. 4. Calculate the overheads total for each month (at 90% of turnover for each for each month with 1000 or more customers and at 96% for each month with less than 1000 customers) and the yearly total.

5. Calculate the profit for each month and the yearly total. 6. Calculate the Cost of Goods Sold for food and beverages, given a combined percentage of 32%.

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7. Calculate the staff costs for each month at 31% for each month with 1000 or more customers and at 35% for each month with less than 1000 customers. 8. Calculate the ‘Other overheads” for the operation.

9. Print a copy of the revised budget. 10. Print the revised budget showing all formulae used.

Part c Your Tasks: Read the following 3 scenarios and answer the questions attached for each scenario. Scenario 1: The finance team has created budget forecasts for Hotel Futura based on carefully researched factors for the last 3 years and these were always very accurate. The recent budget which included all departments of the hotel was implemented 3 months ago and the forecasted figures for Food Cost and COGS/Beverages in both the Restaurant and the Bar Operations have blown out by nearly 4.5 percent. What could be the reasons for this? List 5 examples of areas you would investigate and explain why.  Excessive wastage/ Breakage/ Leakage /Spoilage etc.  Inaccurate Stock reporting procedures  Equipment condition (This could include Reticulation systems, Faulty kitchen equipment contributing to wastage)  Poor Quality of Perishables  Portion Control Issues/ Recipe Management Scenario 2: Hotel Futura has successfully operated for 7 years. During this period, overall turnover has doubled, and during the past 3 budget periods annual budgets have been increased by 15% each year which was exceeded each time. During the last 6 months however, management has noticed that the opposite trend seems to be occurring now. List 5 external factors which could contribute to this and explain which methods you would use to determine this.  Marketing and sales campaigns used  Pricing Strategies compared to opposition in the area  Political factors e.g. elections, unemployment  Infrastructure issues e.g. building activities that may affect access, noise, slowed traffic etc.  Change of management or internal procedures etc.

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Scenario 3: You have successfully negotiated the draft budget with each department head of the Hotel which has now been approved by the director and implemented 6 weeks ago. You have finalised the financial data of the Hotel for the next management meeting and noticed the following: a. b. The recently appointed F&B Manager has purchased 240 bottles of Hill of Blessings @ $90 each which represents a saving of $30 per bottle. However this exceeds the par stock level by 220 bottles and has created a cashflow problem, given the negative performance of the kitchen during this period as well. 1. Which reports would you need to prepare for these issues? Variance report, cashflow report, Department reports (as relevant to the organisation and procedures) 2. Who is it essential to involve when these matters need to be discussed? Manager of Food and Beverage Operations, Executive Chef, Chief Financial Officer, Operations Manager, and President/CEO. Depending on the organization's policies and beginning circumstances, a warning or final warning may be considered in cases of carelessness or misconduct/incompetence. Discussion topics include the cause of the variance, the steps to be taken in the event of a variance, and any corrective measures taken. 3. Suggest options to address and rectify these issues. Determine the origin of problems and fix them; reconsider or renegotiate rates; modify the formula or the menu items when circumstances outside of your control affect them (such as with pricing, seasonality, availability, etc.) implement or adjust methods of portion control and recipe adjustments; retrain or rehire workers, etc. 4. How could the cashflow issue be addressed? Food & Beverage: Contact supplier and negotiate return of, or part of delivery; negotiate longer payment term; contemplate over draught; re-evaluate provisions for cash flow budget and measures; organise specials or an event incorporating extra stock; etc.

Assessment 2 (5)

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