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Budgeting

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process of Budgetting

process of Budgetting

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Budgeting Budgeting Presentation Transcript

  • 12/02/12 Meyer Armand Salamon 1
  • Budgeting  Budgets: financial statements that are prepared and approved prior to a defined period in accordance with the objectives and policies to be pursued in that period  Important management technique  Tool to help both planning and control  Determine the aims and objectives and how those objectives will reached12/02/12 Meyer Armand Salamon 2
  • Purposes  Planning for future activities  Combine ideas of different units  Coordinate the efforts of different units- coordinated management policy  Develop appropriate yardsticks to measure performance  Provide a method of control so that actual results can be evaluated against plans12/02/12 Meyer Armand Salamon 3 View slide
  • Types of Budgets  Long term vs. short term budgets  Capital budget  Operating budget  Department budget  Fixed vs.flexible budgets12/02/12 Meyer Armand Salamon 4 View slide
  • Advantages and Disadvantages  Give business a  Time consuming direction  Costly  Forces management to  Unpredictability of think ahead the future  Provide basis to  Reveal confidential measure information performance  Tendency of  Encourage “spending to the communication and budget” coordination  May create conflicts12/02/12 Meyer Armand Salamon 5
  • Budgeting Framework determine targets system oF Budgetary Control to aChieve targets Capital Budgets operating Budgets Budget Commitee Cash Budget room operations Fixed assets Bud. F&B operations deBtor-Creditor minor dept.s Capital Funds undist. expenses draFt Budget For approval Budgeted B+s Budgeted i+s12/02/12 Meyer Armand Salamon 6
  • Budget Preparation Bottom-up approach  Involve department heads at least Budget committee for coordination Formal presentation by the accounting department Approval by the general manager and then by board of directors12/02/12 Meyer Armand Salamon 7
  • Budget Cycle  Establish goals and objectives  Planning to achieve these goals and objectives  Comparing actual results with the plans and analyzing differences (variances)  Take corrective action if required  Improve the effectiveness of budgeting12/02/12 Meyer Armand Salamon 8
  • Departmental Budgets Starting point Most important and most difficult to prepare Form the budgeted income statement  Estimate revenue levels by depatment  Deduct estimated direct operating expenses  Combine estimated departmental incomes  Deduct estimated undistributed expenses12/02/12 Meyer Armand Salamon 9
  • Rooms Revenue June July August Number of Rooms 30 30 30 Average room rate 45 49,5 49,5 Occupancy 75% 80% 90% Daily revenue $1.013 $1.188 $1.337 Monthly Revenue $30.375 $36.828 $41.43212/02/12 Meyer Armand Salamon 10
  • Budgeted Rooms Revenue – PR 9.1 June July AugustRooms 30 30 30ARR 90 99 99Occupancy 75% 80% 90%Budgeted Rooms Revenue 60.750 73.656 82.863 PR 9.2 – Annual Budget PR 9.3 Budgeted F&B Revenue PR 9.4 – Budgeted Sales Revenue For Coffee Shop PR 9.6 Budgeted Food Revenue12/02/12 Meyer Armand Salamon 11
  • Flexible Budget – PR 9.5 Revenue 800.000 900.000 1.000.000 Food Cost 320.000 360.000 400.000 Variable Labor Exp. 200.000 225.000 250.000 Other Variable 96.000 108.000 120.000 Total Variable 616.000 693.000 770.000 Gross Margin 184.000 207.000 230.000 Fixed Labor Cost 60.000 60.000 60.000 Other Fixed Costs 120.000 120.000 120.000 Total Fixed Costs 180.000 180.000 180.000 Income Before Tax 4.000 27.000 50.000 Tax 1.200 8.100 15.000 Net Income 2.800 18.900 35.00012/02/12 Meyer Armand Salamon 12
  • Budgeting in a New Operation Feasibility study could serve as a base Forecasts based on a combination variables  Meal period revenue  Number of seats  Seat turnover  Average check  Days open in the month12/02/12 Meyer Armand Salamon 13
  • Variance Analysis  Comparison of budget and actual  Dolar and percentage variances over budgeted figure  Dolar or percentage variance investigated depending on the size and nature of establishment  Only variances exceeding the allowance will be investigated12/02/12 Meyer Armand Salamon 14
  • Variance Analysis  Analyze differences for each revenue and expense item  Total variance consists of:  Price variance:  (Difference in price) * Actual quantity  Quantity variance  (Difference in quantity) * Budgeted price  Classified as favorable and unfavorablevariances12/02/12 Meyer Armand Salamon 15
  • Forecasting  Two common techniques  Moving averages  Regression  Regression depends on causal relationships  Y = a + bX  Number of restaurant meals = Meal to non-hotel customers + b (Number of guest nights)12/02/12 Meyer Armand Salamon 16