2. 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 reached
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3. 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
plans
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4. Types of Budgets
Long term vs. short term budgets
Capital budget
Operating budget
Department budget
Fixed vs.flexible budgets
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5. 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 conflicts
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6. 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+s
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7. 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 directors
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8. 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 budgeting
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9. 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 expenses
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10. 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 $41.432
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12. 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 35.000
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13. 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 month
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14. 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 investigated
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15. 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
unfavorablevariances
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16. 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)
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