At the end of the topic students are expected to be able
1.define given terms
2.explain the functions of budget
3.prepare a given budget
4.discuss budgetary control.
A budget is a quantitative expression of a plan for a
defined period of time. It may include planned sales
volumes and revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows. It expresses
strategic plans of business units, organizations,
activities or events in measurable terms.
This is the process of converting plans into
budget. Budget can be expressed in terms of
Labour cost budget
Budgeted profit and loss account.
Other than money for example personnel budget
may project the number of separation over a period
of time and show number of employees to be
engaged for various departments.
Budget percentage of room occupancy.
Budgeted number of cover.
This is a means whereby responsibility for budgeted
results is assigned to the managers concerned. It is
the personal responsibility of a manager in relation
to the establishment or department or certain that
he controls the responsibility is expressed in terms
The target group.
The profit margin.
The cost of operations
The profit target
The comparison of budgeted and the actual results.
Objectives of Budgeting
Planning must be properly co-ordinate and
comprehensive for the whole business.
Manager must be given a guide to help him to produce
a certain desire result and the actual achieved results
can be compared against the expected.
Objectives of budgetary
To give practical expression to the aim and policies
of the business e.g. assessment of the sales
performance of the business and this will depend
a) Past performance
b) Current trends
c) Any limiting factor.
NB// any analysis of past sales should distinguish
between food sales, accommodation sales etc.
However there could be negative effects on sales
Condition of local industries
State of employment
Kinds of Budgets
It deals with assets and capital funds of a business.
Deals with the income and expenditure of a business.
It in co-operates all the income and expenditure plus
the assets and liabilities of a business
It is done in respect to the single department of
business e.g. special functions like banqueting,
wedding receptions, the sales and purchases have to
be budgeted for.
This is a budget which is independent on the level of
turnover e.g. advertising office administration,
maintenance budget; this is because short-run
changes in the volume of turnover have no effect on
the budget concerned.
Budget which provides for several level of turn over and
pre-determines cost or cash flow accordingly, for
example changes in the rate of room occupancy may
affect labour cost in a small hotel.
Examples of Limiting factors in
a business Establishment
Size and capacity of the establishment.
Special functions capacity – limited availability of
Sitting capacity – seats available are limited.
Consumer demand – depend on the area, the
population, the average income competitors transport
facilities and weather conditions.
Quality of management and staff will enhance the
reputation of the establishment and thus increase the
sales potential. Unskilled staff is disastrous, good
quality food comes from skilled staff and the
efficiency of the waiting staff will be reflected in the
Insufficient capital – lack of enough funds to expand.
Management policy – if the management have laid a
set policy that will only cater for a certain type of
customer and will accept certain type of business such
as football or rugby netball and pool games
The purpose of the sales budget is to pre-determine
the volume of sales in respect to a trading period; this
enables an assessment of the sales performance in a
business at the end of that period.
Importance of Sales Budget
It has an influence on the volume of sales on
It influences the preparation of other budgets.
Budgeted volume of sales will influence.
Budget food & beverage cost
Budgeted volume of sales will depend on
Any limiting factor which may be in operation
with this budget.
Development of Sales Budget
Factors to be considered:
For each revenue produced department special
Circumstances affecting each department.
Complete analysis of the previous years, actual sales
figure for each department.
Analyses of the sales mix percentages.
A careful study of propable future trends and
Any significance change in the sales milk must be
analyzed to see what effect will have on the purchase
Any changed in the use of food stuffs e.g. pre-packed
commodities or convenience foods must be noted and
studied for effect on the cost of purchases.
Any change in supplies.
Budgeted Profit and Loss
This is to pre-determine in the respect to a particular
trading period all the income and expenditure of a
business as well as the net profit to be carried. E.g.
departmental gross profit, labour cost percentage,
overheads percentage and net profit percentage.
Labour Cost Budget
Labour cost budget are budgeted for in relation to the
budgeted volume of sales, the higher the volume of
sales the higher the total cost of labour.
NB// A given increase in the volume of sales must not
necessarily result in a proportionate increase in
labour cost. When sales arising many components of
the total cost of labour remain fixed e.g. management
and supervisory salary. Labour costs are fixed and
others tend to vary in the same direction as the
volume of sales.
Factors considered in Preparation
of labour cost budgeting
The number and grade of each staff in each
The budgeted rate of paying for each grade of staff.
Casual and part time labourers.
Cost of national health insurance.
All accommodation, holidays with pay, bonuses and