Restaurant Financial Projections

This assignment presents financial data for a hypothetical restaurant and tasks students with calculating projected sales for both lunch and dinner services. Students must use the provided average spending per customer and seating capacity to determine these projections. Additionally, they need to calculate the total projected annual revenue by combining lunch and dinner sales figures. The assignment also touches upon key financial concepts such as cost management and the importance of analyzing cost-volume-profit relationships.

Financial Management
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Part A
Question 1
Managers estimate costs for the future for effective financial management. One of the most
important sources of obtaining information in order to estimate the costs is the historical data
relating to such costs. Like for estimating the cost of purchases, the manager can refer to the
purchases made in the past and the rate at which the material was purchased. Another source
for gathering such information is to gather the competitor’s data which may be available in
various software available in the market for purchase (Tolhurst, 2013)
Question 2
It is very important for businesses to keep records of all their business transactions
throughout the year. These records are especially helpful for tax purposes. Three banking
records which should be kept by a business include:
a) Cheque book – a cheque book is a small book containing cheque leaflets used by a
business to make payments through their bank accounts. All the details of the cheques which
are written should be recorded in the cheque butt.
b) Deposit book – these books are available from the bank to be used to record sales. The
deposit book has details of the date of deposit, the payer’s name and the amount of deposit
(ird.gov, 2017). The deposit book categorizes each deposit into cash, cheque or credit card
depending on how the money is received.
c) Bank statements – bank statements are available from the bank on a monthly basis. Such
bank statements should be acquired for both private and business account. A reconciliation of
the bank statement with the cash book helps in preparing the GST returns.
Question 3
The personnel with whom one may communicate regarding the documentation of outcomes
and information on customers, competitors and business operations are head of sales team,
head of marketing team and the operations head respectively.
Question 4

Contingency plan is plan B in a business in case the expected results do not materialize. It is
the alternative course of action a business may take in case any unexpected events take place
in order to avoid losses and provide opportunities for a business. It is a risk management tool
used to mitigate the impact of risks associated with the unexpected event.
It is important for every business to have a contingency plan; the various reasons for a
contingency plan are discussed below:
a) For better flexibility – such plans provide more flexibility in doing business as it prepares
for any unseen challenges. Like if there is a change in the government policy or a slowdown
in the economy, having such contingency plans will help the business in dealing with such
changes effectively without having any catastrophic effect.
b) Prepares for the worst – the objective of contingency plans is to prepare the business for
the worst, thus avoiding losses. Instances like loss of all documents in a fire or death of the
president in between an important deal are unlikely and dangerous events, however better
plan b planning will mitigate the impacts.
c) Faster reaction – firms with plan B react faster than the ones who do not have one. This
may result in less damage to the organisation. Also employees of companies with
contingency plans are more prepared and come out with great solutions to such unexpected
events.
d) Prevent panic – people generally panic in a business not because an unexpected event has
aroused but because there is no solution, however with contingency plans a backup solution
is available and hence it avoids panic in people and they are able to think and react better and
faster.
There is a process to develop a contingency plan, the steps involved in developing such plan
is discussed below:
1) Developing the contingency planning policy statement. This policy provides guidance in
development of the plan.
2) Conducting a BIA (business impact analysis). Under this analysis the business functions or
components are prioritized depending on the mission of the business and factors are set for all
the prioritized items. (Govinfosecurity, 2010)

3) Identifying the preventive controls by reducing things causing systems disruptions in order
to increase system availability and prevent the company from any harm.
4) Make contingency strategies which are effective and can tackle the situation quickly in
order to reduce the recovery time.
5) Developing an efficient information system by including all necessary guidelines and
procedures needed to recover from a damaged system which is unique to the system.
6) Regular testing, training and exercises should be done in order to make required
improvements to the plan according to the situation of the organization, thus preparing the
organization for better recovery.
7) Maintenance of the plan by updating the plan as per the changing environment. The plan
should be flexible enough to account for any changes in the daily procedures, organizational
changes and system enhancements.
Three specific areas to be included in the plan are natural disasters, crises like working
accidents and changes in government policies.
Question 5
A financial plan determines the activities needed to be carried out, the resources required, the
assets to be purchased and maintained and the materials needed to achieve the company goals
and objectives. A financial plan is normally prepared after preparing the company’s mission
and vision. A good financial plan should include the following:
a) Requirement of funds – the plan should indicate the funds necessary to start the business.
b) Funding required in the future – the plan should include the amount of funding required
over the next few years.
c) Use of funds – it should clearly mention the areas where the above funds are to be used for
effective funds management.
d) Timeline for funding – it should mention the time frame in which the funding is to be
carried out.
Question 6

External and internal factors that influence the financial planning include the following:
Internal factors
a) Size of the business – objective of a small business is survival with good cash flows
whereas the objective of a multinational would be maximization of shareholder value.
b) Business ownership – the type of business ownership influences the financial planning
process as a venture capitalist will have different objectives as against a family business
ownership.
c) Functional objectives – every department in a company has their own finance dimension
which raises conflicts with the finance department.
External factors
a) Competitors – competitors have a major effect on financial planning as the company needs
to work in the same competitive environment.
b) Economic conditions – the financial plans should take into account the economic
conditions under which the business operates in order to minimise costs and maximise
benefits.
c) Availability of finance – considering the various sources of finance available in the market,
a business constitutes its plans (Ceryslynda, 2016)
Question 7
A budget is an estimate of the organisations revenues and expenditures over a specified
period. It is the plans of a business in financial terms (Cole, 2009).
Objectives of a budget include the following:
 Providing a realistic estimate for the future income and expenses for the specified
period
 Providing a plan of action for achieving the desired results
 Comparison of actual results with the budgeted ones and identification of any
deviations
 Rectification of deviation for improved future plans
 Helping in decision making

 A basis for making forecasts for budget preparation in the future
Master budget includes both financial budget and operational budgets (Blocher, 2008). Along
with the above budgets it also includes the financial statements, cash flow budget and a
financial plan. A master budget is prepared for a short period of a month, quarter or a year. A
master budget is a planning tool which provides guidance with respect to the activities to be
carried out by the company to obtain the desired results which is the short term objectives of
the business. It also helps in measurement of performance of the various responsibility
centres.
Question 8
i) The Flexible budget variance report is presented below:
Flexible
Budget Actual Variance
Favourable/
Unfavourable
Bikes sold 1,13,500 1,13,500
Revenue $9,08,00,000 $9,05,00,000 -$3,00,000 U
Production costs:
Variable $2,89,14,125 $2,94,92,408 $5,78,283 U
Fixed overhead $2,02,00,000 $1,94,00,000 -$8,00,000 F
Support department
costs $3,29,56,430 $3,75,65,337 $46,08,907 U
Net income $87,29,445 $40,42,255 -$46,87,190 U
Total variance -$46,87,190 U
ii) Based on the above variance report, it can be said that APC Bikes is performing poorly.
The entity has mostly unfavourable variances. The actual revenue is less than budgeted, the
actual variable costs and support department costs are also more than budgeted. Only the
actual fixed overheads are less than the budgeted giving a favourable variance. Overall the
entity’s net income is unfavourable and is less than budgeted.
iii) Based on the variance analysis, we can suggest that the company should look at reducing
the variable costs and the costs of the support departments. Also the actual selling price of
bikes is less than budgeted, so the entity should increase the selling price to the budge
Question 9

To have a good cash management system, a company must know the need of cash in terms of
when, where and how such needs will arise, should be aware of the best sources of arranging
for the additional cash required and be able to fulfil the additional cash requirement by
having a good rapport with the creditors and the banks. For a good cash flow management, a
budgeted cash flow should be prepared on a weekly or monthly basis.
Question 10
Cost volume profit analysis is an accounting technique that deals with the effect of a change
in sales price, sales volume, variable costs and fixed costs on the operating profits of a
business.
Companies mostly use cost volume profit analysis in order to make informed decisions about
the products. The types of decisions which can be made using the cost volume profit analysis
include selection of an optimum product mix, make or buy decisions, deciding the pricing
policy, marketing strategy to be used and opting for the most cost effective distribution
channel. Under the CVP analysis, break even sales are determined which is the minimum
sales a company needs to make to avoid losses (Wicks, 2017). Based on such estimates, the
company can decide on its course of action as to opting for the one in which at least the
break-even point is achieved. Also if a company has a particular target of profit to be
achieved, CVP analysis can be used to determine the product mix which will give the desired
results.
Question 11
Break even in units = Fixed costs / contribution margin per unit
Particulars Amount
Price per bike $800
Variable cost per bike $300
Contribution margin $500
Fixed costs = $5,500,000
Break even units = $5,500,000 /$500
= 11000 units
Total revenue = selling units * price per bike

Targeted pre-tax profit = $300,000
Adding fixed costs to the pre-tax profit, we get the total contribution margin
Contribution margin = $300,000+$5,500,000
= $5,800,000
Number of bikes sold = contribution margin / contribution margin per unit
= $5,800,000 / $500
= 11600 units
Therefore, total revenue = 11600*800
= $9,280,000
Question 12
The three types of supplies under the GST legislation include:
a) Taxable supplies – an entity is required to pay GST on the taxable supplies. For such
supplies, there must be a consideration involved and should be a business activity.
b) GST-free supplies – no GST to be charged from customers for such supplies. These
supplies include supplies made for health, education, certain charitable activities, export of
goods and supplies made to entities outside Australia (Australia, 2012)
c) Input taxed supplies – No GST to be charged from customers and supplier even cannot
claim back GST for purchases made for this supply. Some examples of such supplies include
financial supplies, rent on residential premises, sale of residential premises, transactions
involving precious metals (University)
Question 13
Direct labour price variance = (standard rate – actual rate) * actual direct labour hours
Direct labour price variance for ice cream shop = ($8 - $9.5) * 3950
= -$5,925

The variance is unfavourable because the entity has paid a higher per hour rate than the
standard rate. The possible reasons for this variance could be:
 Inappropriate use of labour by the managers.
 Poor estimates of the standard labour rate
 Unforeseen complexities which may lead to use of more skilled labour requiring
higher ware rate.
 Change in economic conditions (Clements)
Question 14
The factors that need to be considered while evaluating the financial management system
include:
 Reporting
 Business processes
 Module and functionality in the software
 Integration of the system
 Cost of the software (AlphapeopleERP, 2009)
Part B
Question 1
The five common types of budgets include the following:
a) Master Budget - A master budget constitutes all the aspects of a business to give a clear
picture of the entity’s financial activities. It is a combination of various sub budgets prepared
for different functional areas and it summarizes the business activities through financial
statements including income statement, balance sheet and cash budget. A master budget is
helpful to the managers in establishing goals and in evaluation the performance.
b) Operational budget – the budget is a forecast of the income and expenses over the
budgeted period. The various budgets prepared under operational budgets include sales,
production, material, labour, manufacturing overhead, and other administrative expenses.
c) Income budget – income budgets include sales budget and other income budgets.

d) Financial budget – the budget helps a company in managing its assets, income, expenses
and cash flow. The managers use this budget to decide on the financial leverage and also to
value the company for the purpose of public offering and mergers and acquisitions.
e) Static budget – it is a fixed budget where the expenditures remain fixed irrespective of a
change in sales volume. Such budgets are mostly used by public or non-profit organisations
where the company is funded through grants.
Question 2
Commonly used budgets Budget type
a. Room revenue budget Income budget
b. Refurbishment budget Financial budget
c. Event budget Master budget
d. Contract cleaning budget Static budget
e. Printing budget Operational budget
f. Marketing budget Operational budget
g. Cash budget Master budget
h. Budget for a small business Financial budget
i. Advertising budget Operational budget
Question 3
Cash flow is the inflow and outflow of money in the business over a month. The cash inflows
in a business are from cash sales, collections from debtors, capital contributions from the
owner and any borrowings made by the entity. The cash outflow is from payments for
purchases, payment to creditors, payments for various operating expenses like rent, wages,
advertising, payment of income tax, drawings by owner, and loan payments.
A business can control its cash flow by measuring its cash flow. The company should prepare
cash flow projections on a monthly, quarterly or yearly basis. For the projections, the cash on
hand is added to the cash flow during the period. Thereafter the cash payments to be made are
projected. The difference of the total cash available for use and the cash disbursements is the
cash flow. Such projections will help in knowing the sources and uses of cash in advance and
hence any excess or shortage of cash can be avoided.

Question 4
Forecasted Cash Flow Statement for the Year Ended
Mth 1 $ Mth 2 $ Mth 3 $ Mth 4 $ Mth 5 $ Mth 6 $
Cash position - start
of month - 5,228 10,156 8,974 8,232 9,720
Cash receipts
Cash sales 9,000 10,800 12,600 19,800 21,600 25,200
Cash from sales
debtors 30,000 1,000 1,200 1,400 2,200 2,400
Capital contributions - - - - - -
Borrowings - - - - - -
Total cash receipts 39,000 11,800 13,800 21,200 23,800 27,600
Less: Cash payments
Advertising 3,000 1,000 1,000 1,000 - -
Stock purchases 17,000 7,660 15,070 16,440 19,180
Wages 1,933 1,933 1,933 1,933 1,933 1,933
Rent 1,733 1,733 1,733 1,733 1,733 1,733
Loan repayments - - - - - -
Other expenses 5,106 606 1,056 606 606 1,056
Asset purchases 3,400 - - - - -
Drawings 1,600 1,600 1,600 1,600 1,600 1,600
Total cash payments 33,772 6,872 14,982 21,942 22,312 25,502
Net Cash flow 5,228 4,928 -1,182 -742 1,488 2,098
Cash position - end
of month 5,228 10,156 8,974 8,232 9,720 11,818
Question 5
When collecting the data for analysis of the cash flow, the sales data can be obtained from the
marketing department and finance department.
Question 6
A good financial management process requires effective utilisation of the available resources.
The data collected for the purpose of budgeting will help to ensure the sourcing and use of
funds is as per the standards, and in case there is any change in the internal or external
environment, the same can be tracked and necessary adjustments can be made to the budgets
to make the performance measurement worthwhile.
Question 7

Some factors that could affect the budget include the economy, government legislation,
actions of the competitors, market research and the past sales figures.
Question 8
a) Projected sales for lunch = annual lunch seat turnover * average spent at lunch
Lunch seat turnover = 80%
Number of seats in restaurant = 160
No. of days restaurant open for lunch = 260 days
Total seats for lunch in the year = 260*160 = 41600 seats
Lunch seat turnover = 41600*80% = 33280 seats
Average spent at lunch = $16.50
Hence, Projected sales for lunch = 33280*16.5
= $549,120
b) Projected sales for dinner = annual dinner seat turnover * average spent at dinner
Dinner seat turnover = 70%
No. of days restaurant open for dinner = 312 days
Total seats for dinner in the year = 312*160 = 49,920 seats
Dinner seat turnover = 49920*70% = 34944 seats
Average spent at lunch = $25.50
Hence, Projected sales for dinner = 34944*25.5
= $891,072
c) Projected total annual sales for the restaurant = total annual sales for lunch + total annual
sales for dinner
= 549120+891072

= $1,440,192
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