Objectives and Benefits of Budgeting for London Docks Cafe

This report focuses on the objectives and benefits of budgeting for London Docks Cafe. It discusses variance analysis, areas of concern, and measures for profitability and sustainability. The report provides insights into the importance of budgeting in managing the financial situation of the organization.

Assessment

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Objectives of budgeting and benefits of engaging in budgetary processes.................................1
Report showing variance analysis................................................................................................3
Areas of concern..........................................................................................................................4
Profitability and Sustainability....................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
A budget refers to an assessment of the overall revenues and expenditures of a particular
organization over a certain period of time (Benade and et.al., 2020). It is important to prepare it
so that the overall estimation of the financial situation within an organization can be made in the
right manner. This report will focus on The London Docks Cafe. It is a company which prepares
meals for tourists and citizens in its kitchen which is located next to the local airport. In this
report, there will be specific focus on outlining of objectives of budgeting and explanation of
benefit of engaging in budgetary processes, report showing revenue and spending variance,
activities of concern for the organization. Additionally, focus on measures for the attainment of
profitability and sustainability will be made as a part of this project.
MAIN BODY
Objectives of budgeting and benefits of engaging in budgetary processes
Budgeting is a process through which the estimation of the overall receipts and
expenditures for the future can be made (Chohan, 2016). It is an essential process which must be
followed by the different types of organizations. In the context of London Docks Cafe it is quite
important that this process is used so that the budgets are prepared by it. The following are the
objectives of budgeting-
 Providing of structure- Through budgeting, the structure which must be used within an
organization must be identified (Downes, Von Trapp and Nicol, 2017). Therefore in this
way London Docks Cafe will be able to prepare a budget which has an appropriate
structure. This will help a lot in fulfilling the budgetary requirements.
 Prediction of cash flows- With the use of budgeting, the prediction of cash flows can be
done (Fain, Goel and Munagala, 2016). Thus in this way London Docks Cafe will be able
to identify the way the inflows and outflows of cash can happen in the organization thus
allowing it to exercise a control on the overall cash requirements.
 Allocation of resources- Through the use of budgeting process, the allocation of the
resources can be done. Therefore, this will allow London Docks Cafe to be able to ensure
that the appropriate allocation of resources is done to achieve the future goals and
objectives.
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 Model scenarios- With the use of budgeting process, scenarios for different situations
must be set up. Thus, In this manner London Docks Cafe will be able to ensure that a
budget can be prepared according to the different types of situations. This will help the
organization as it will be able to assess its different types of needs and requirements
pertaining to the different situations and thereby take the necessary action.
 Measurement of performance- Through the use of budgeting, a measurement of the
overall level of performance can be done within the organization (Henttu-Aho, 2016).
This will be helpful in ensuring that the deviations and variations in the performance can
be effectively analysed. Thus there can be a use of methods and techniques so that these
deviations and variations can be removed. This will help a lot in bringing the desired
improvements in the performance.
 Coordination- With the use of budgeting the coordination between the different types of
departments in an organization must be established. Thus in this way it will be quite
helpful for London Docks Cafe so that the different activities can be phased out in a
proper manner which will be quite helpful in the attainment of the different types of goals
and objectives.
 Communication of results- Use of budgeting should be made for the communication of
the results which have been obtained. Therefore in this way London Docks Cafe will be
able to ensure that the results which have been arrived through the use of budgetary
process are communicated to the different stakeholders. This will be quite helpful in the
attainment of the desired goals and objectives.
The preparation of budgets leads to different types of advantages for the organizations. Some of
these advantages in the context of London Docks Cafe are explained as follows-
 Monitoring of performance- When the budgets are prepared the monitoring of the
performance can be done effectively. Thus in this way the management of London Docks
Cafe is in an advantage because through preparing the budgets it will be able to assess the
performance and if deviations and variations are found then the improvement can be
made.
 Decision-making- Through the preparation of budgets, the different types of decisions
can be taken within the organizations. Thus in this way the managers of London Docks
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Cafe will be able to ensure that they take the right decisions which are there for the
benefit of the organization.
Report showing variance analysis
The report of London Docks Cafe which shows the assessment of different types of
variances is as follows-
Basis Planning Actual Variance
Budgeted meals
quantity
20000 18000 -2000
Revenues 100000 90000 -10000
Raw Material 50000 45000 -5000
Wages and Salaries 10500 10000 -500
Utilities 3500 3400 -100
Facility Rent 5000 5500 500
Insurance 2800 3200 -400
Fuel 2500 2800 300
Net Operating
Income
25700 20100 -5600
Budgeted meals quantity- The budgeted meals quantity was 20,000. The actual meals
quantity was 18,000. Thus there is a difference of 2,000. Thus this has happened due to the
reason that the assessment of the budgeted quantity was made wrongly which has resulted in the
creation of this variance.
Raw material- The raw material was planned to be 50,000. The actual result was 45,000.
Thus a difference of 5,000 has been created. The reason for this difference is that the estimation
related to raw material was made wrongly.
Wages and Salaries- The Wages and Salaries were planned to be 10,500. The actual
result was 10,000. The difference of 500 has been created. The reason due to which this
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difference has been created because the estimation related to the Wages and Salaries has been
made incorrectly.
Utilities- The Utilities expenditure was stated to be 3500. The actual result was 3400.
The difference was 100. The reason due to which this difference has been created is that the
assessment of the expenditures related to Utilities has been made incorrectly.
Facility Rent- The planned expenditure was 5000. The actual result was 5500. Thus the
difference was 500. The reason for this difference was that the assessment of the expenditure
related to Facility Rent was made wrongly.
Insurance- The planned expenditure was 2800. The actual result was 3200. Thus the
difference of 400 has been created. The reason for this difference is hat the assessment of the
expenses related to Insurance has been made wrongly.
Fuel- The planned expenditure was 2500. The actual result was 2800. Thus the difference
of 300 has been created. The reason due to which difference has occurred is that the assessment
of fuel expenses was made incorrectly.
Net Operating Income- The planned Net Operating Income was 25700. The actual Net
Operating Income was 20100. Thus the difference of 5600 has been recorded. The reason for this
difference is that the assessment of Net Operating Income was made incorrectly.
Areas of concern
On the basis of the interpretation of the report, the following are the areas of concern for
the managers of London Docks Cafe-
 Budgeted meals quantity- The budgeted meals quantity was less than the planned one
(Kenno, Lau and Sainty, 2018). This shows that the organization has not been able to sell
the meals in the desired quantity. This is an area of concern for it because it shows that
the firm has not been able to meet its targets related to the units.
 Revenues- The revenues of the company were less than the desired level (O’Grady and
Akroyd, 2016). This shows that the organization has not been able to increase its sales
according to the desired level. This is an area of concern because the income of the
company has not been able to meet the desired standard.
 Raw Materials- The raw materials were less than the desired level. This means that the
organization has not been able to meet its requirements related to the raw materials. This
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is an area of concern because it shows that low raw materials are available for the
company to use.
 Facility Rent- The Facility Rent was more than the expected level. This shows that the
organization's expenses have increased. This is an area of concern because this means
that the expenses related to rent have seen a rise which will impact the profitability of the
enterprise.
 Insurance- The Insurance expenses were also more than the expected level. This means
that higher expenses were incurred on Insurance. This is particularly an area of concern
because this means that the higher level of expenses will be incurred on Insurance which
will not only increase the overall expenses but will also reduce the profits.
 Fuel- The Fuel expenses were higher than expected. This is a problem area for the
company because it shows that higher-level of expenses are being incurred. This is
impacting the overall profits which are being earned by the company.
 Net Operating Income- The Net Operating Income was lower than expected. Therefore
in this way it is a problem area for the company because the company's earnings are
lower than the expected level. This means that the income of the company is not meeting
the expected standard.
Profitability and Sustainability
Profitability- It refers to the amount of money which is earned as profits by the
organizations. It is important for the management of London Docks Cafe to make sure that the
profitability of the company can be enhanced in the right manner.
Sustainability- It refers to the ability to maintain something at a desired level. Thus it is
quite crucial for the managers of London Docks Cafe that it is able to ensure that sustainability is
maintained effectively within its operations which will help in the attainment of the goals and
objectives in the future.
Measures to be adopted for the maintenance of profitability and sustainability-
 Identification of the goals and objectives- For improving the profitability and
sustainability it is crucial for the organizations that they are able to identify the goals and
objectives they want to achieve in the future (Pape and Lerner, 2016). Thus in this way
the required help can be provided which will help a lot in achieving the desired level of
profitability and sustainability for London Docks Cafe.
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 Resolving the problems in the problem areas- Improvement in profitability and
sustainability can be made through identifying the problems which are present in the
different types of problem areas (Talmon and Faliszewski, 2019). Therefore in this way
London Docks Cafe will be able to ensure that the level of profits can be enhanced
without facing problems and issues.
 Identifying the products which earn higher-level of profits- Through the identification
of the products which earn higher-level of profits the company can make sure that it is
able to apply specific strategies regarding them which will thus help in ensuring that the
goals and objectives can be attained without problems and issues. This will be quite
helpful for the management of London Docks Cafe so that the attainment of the profit-
related goals and objectives can be met.
 Lowering the expenses- When the overall expenses related with the organizations are
lowered this leads towards ensuring that higher-level of profitability can be maintained
(van Helden and Reichard, 2018). Thus in this way the management of London Docks
Cafe will be able to make sure that by reducing the expenses they are able to not only
maintain the profitability level but are also able to effectively sustain themselves.
CONCLUSION
From the above report, it can be concluded that a Budget refers to an estimation of the
overall revenues and expenditures in the future. There are different types of objectives which are
related with Budgeting and also there are certain benefits of making the use of budgetary
process. With the preparation of a report the variances in revenues and expenses can be analysed
quite effectively and efficiently. There can also be different areas of concern for the management
regarding the variances. There are also different types of measures which can be taken so that
profitability and sustainability can be enhanced in the right manner.
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REFERENCES
Books and Journals:
Benade, G. and et.al., 2020. Preference elicitation for participatory budgeting. Management
Science.
Chohan, U. W., 2016. The idea of legislative budgeting in Iraq. International Journal of
Contemporary Iraqi Studies. 10(1-2). pp.89-103.
Downes, R., Von Trapp, L. and Nicol, S., 2017. Gender budgeting in OECD countries. OECD
Journal on Budgeting. 16(3). pp.71-107.
Fain, B., Goel, A. and Munagala, K., 2016, December. The core of the participatory budgeting
problem. In International Conference on Web and Internet Economics (pp. 384-399).
Springer, Berlin, Heidelberg.
Henttu-Aho, T., 2016. Enabling characteristics of new budgeting practice and the role of
controller. Qualitative Research in Accounting & Management.
Kenno, S. A., Lau, M. C. and Sainty, B. J., 2018. In search of a theory of budgeting: A literature
review. Accounting perspectives. 17(4). pp.507-553.
O’Grady, W. and Akroyd, C., 2016. The MCS package in a non-budgeting organisation: a case
study of Mainfreight. Qualitative Research in Accounting & Management.
Pape, M. and Lerner, J., 2016. Budgeting for equity: How can participatory budgeting advance
equity in the United States?. Journal of Public Deliberation. 12(2).
Talmon, N. and Faliszewski, P., 2019, July. A framework for approval-based budgeting
methods. In Proceedings of the AAAI Conference on Artificial Intelligence (Vol. 33, pp.
2181-2188).
van Helden, J. and Reichard, C., 2018. Cash or accruals for budgeting? Why some governments
in Europe changed their budgeting mode and others not. OECD Journal on Budgeting.
18(1). pp.91-113.
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