This report discusses the importance of budgets for Twin Rivers Café and provides a detailed analysis of the company's revenue and spending variances for July. It also offers advice and suggestions to improve the cafe's performance.
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Table of Contents EXECUTIVE SUMMARY.............................................................................................................3 TASK...............................................................................................................................................3 A. Objective of preparing a budget for Twin Rivers Café:....................................................3 B. Report showing the company’s revenue and spending variance for July along with explanation:............................................................................................................................4 C. Activity of variance should be of concern to management:..............................................5 D. Advise and Suggestions to Twin Rivers Cafe:..................................................................5 CONCLUSION................................................................................................................................6 REFERENCES................................................................................................................................7
EXECUTIVE SUMMARY This report sums up the main goals of Twin Rivers Café's framing budgetswith a view to improving overall business performance. The report also summarizes a thorough report about variations in the actual revenue, costs and profitsfigures of the respective corporation. Further report includes a significant variance activityand advises or recommends to companies that these variances should be minimised. TASK A. Objective of preparing a budget for Twin Rivers Café: Budgetsaregeneralrevenues/salesforecastsandvariousexpensesforthe specifiedperiod ahead and are typically framed and reviewed on a periodicalbasis. A budget acts as an internal structure by managers of corporations like Twin Rivers Café and is not often required to be communicated by external entities like interested parties. Overall production activitiesaresubjecttofinancialbudgets.Thebudgetismainmethodusedtomonitor expenditure and budgetary discrepancies by financial analysts (Vance and et.al, 2016). Company shouldconsiderinconsistencies between plans and actual-costs by comparing the forecast with actual figures. The bigger the variances, the bigger the need for managerialassistance. A budget could help to set priorities, track progressesand make contingency planning, in addition to apportioningresources.Thisalsoencouragesthecorporationtohavethoseemployees accountable for reducing budget disparities. A well-designed budget allows a corporation to monitor where it is financially. It makes long-term strategical and visionary planning feasible by showing deviations from the current operating expenditures. In this regard, some main budget objectives are as follows: Provide specific framework:A budget is specifically effective to provide a corporation with directionsas to the path to be pursued. It therefore provides a framework for another steps. A Manager is instructed that a corporation that has no better direction should enforce a budget. Obviously, if Manager immediately scraps the budget and hedoes not update it for another year, a budget would not provide sufficient framework. A budget generates a significant framework only if executives continually alludes to it and assesses personnel performance onbasis of their expectations.
Measuring performance:It is a universal aim of generating a budget, which is based on budgetingdifferences, to measure the efficiency of personnel along with whole enterprise. This is a complex job as managers want to adjust their plans to help them achieve their personal goals but budgets make it easy for them. Resource Allocation: In order to decide how to assign funds to numerous operations, likeasset acquisitions, most corporations applythe budgets. Though this is a valuable aim the evaluation of capability constraintshould be integrated in order to ascertain where assets should actually be distributed (Lidia, 2015) Cash Flow Projections: A budget is of good use in firms with rapid growth, cyclical sales or unusual sales trends. These corporations find it harder to estimate the amount of funds they are actually likely to get inshort term, leading to standard cash crises. Budget is advantageous to project free cash flow, which generates further and further inconsistent results Therefore, the creation of inflows incoming months is only a fair budgetary goal (Senthilkumar, Nesme, Mollier and Pellerin, 2012). Providingincentives:Oneoftheobjectivesofprecedingactivity'sbudgetsaretooffer incentives The fact that unusual departmental budget spreads are only absorbed incentral organizational budget at the endingoffinancial year can lead to rational, albeit inefficient, decisions of using funds until theylost (Finance and Network, 2013). B. Report showing the company’s revenue and spending variance for July along with explanation: Planning and Actual Budgets For The Month Ended July 31, 2018 PlanningActualVariance Budgeted meals quantity (Qty.)1800017800200 Revenue£ 81000£ 80100£ 900 A Expenses: Raw material (£ 2.40q)£ 43200£ 42720£ 480 F Wages and salaries (£ 5 200+£ 0.30 q)£ 10600£ 10540£ 60 F Utilities (£ 2 400 + £ 0.05 q)£ 3300£ 3290£ 10 F Facility rent (£ 4 300)£ 4300£ 5100£ 800 A Insurance (£ 2300)£ 2300£ 2600£ 300 A
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Fuel£ 2480£ 2490£ 10 A Net Operating Income£ 14820£ 13360£ 1460 A In the above-mentioned report F denotes positive or favourable variance for the enterprise while A denotes negative/unfavourable or adverse variation. From above variance analysis, it was evaluated that 17,800 items were actually sold as opposed to expected revenue units of 18,000 business, resulting in an adverse variances in revenue of £900. Although RM's scheduled cost is £43200 compared to RM's actual incurred cost, i.e. £42720 signifying a positive or favourable variance. The salaries and wages expensesof the corporation have noted a positive or favourable variance of £60, as well as there is a saving of £ 10 in spending on utilities as planned. On other hand, there have been negative variances inrent facilities, insurance and fuel of £800, £300 and £10. The total net-operating profit of the organization also indicates a negative/unfavourable difference of £ 1460. C. Activity of variance should be of concern to management: Based on the review of above presented variance study, it has been established that there are multiple variancesactivities in companyTwin Rivers Café that must be targeted by managers in order to attain planned estimates. Next, Cafe is struggling to generate the target sales, resulting in a substantial difference inoperating profits of the company. There are three costs that are raised relative to expected figures with even revenue volume decline. Such costs are rent, fuel andinsuranceservices.therearesubstantialdifferencesinalloftheseexpenditures. Rentingfacility is £800 higher than expected. While there are also higher insurance premiums premiumpremiumsthanexpectedfigure.Fuelcostsarealsohigherthanlevelplanned. Ignorance of this key variance leads to a downturn in the aggregate business performance. Management should make sure to reduce the variance gapein such operations. There is also a significant difference in prices and amounts since the variability suggests that the business cannot produce expected profits (Gago-Rodríguez and Purdy, 2015). D. Advise and Suggestions to Twin Rivers Cafe: In order for variances to be maintained, these discrepancies are best explored in quarterly/monthlyreports and routine meetings between top-management and unit managers. Cafe Twin Rivers suffers with low sales according to present expectations. Managers should therefore work on this area first. Owners and management must also effectively analyse their
expected or projected profits to see if planned performance relies on the cafe's efficiency and effectiveness. Based on tourism habits, arrivals, flights and consumer desires, the business will establish schedule, as the company prepares food for visitors/citizens and is situated in close proximity to the regional airport. Once the potential impact of such elements onCafe business is regarded, the planned earnings must be ascertained. In ascertaining the estimated sales, any cyclical effect, inflationsimpact and further environmental impactsshould also be taken into account. Furthermore, fixed expenditures such as facilities rent and insurance costs also grow with a remarkable sales increase. In this context, these costs should be optimized in order to reduce the variability gap inoperating income. For healthier evaluation and financial planning, the organization should categorize its costs as fixed and variables. In order to optimize such expenditures, it is crucial for companies to identify factors that lead to increased costs. Insurance and Rent-facilities should be regarded as fixed expenses not affected by variation in the total sales price or statistic. In addition, a corporation should develop effective control and permission of payments for fuel expenditures in order to reduce fuel costs. In order to establish an efficient internal control system, the business also may segregate fuel costs authorization. Company should also place internal check on expenses to control and maintain overall expenditures (Makings and et.al., 2014). CONCLUSION The above study shows that the budgets are an important component of an organization identifying its output and determining variables which affect the accomplishment of defined goals. To order to enhance and maintain business performance, managers must take various variances on priorities. Company could also use budget effects to test the feasibility of such actions and make specific strategic decisions.
REFERENCES Books and Journals: Finance, E.H. & Network, C., (2013).The eurosystem household finance and consumption survey-results from the first wave(No. 2). ECB statistics paper. Gago-Rodríguez, S. & Purdy, D.E., (2015). The effects of budgetary knowledge and extrinsic motivation on the importance that managers attribute to their budgets.Spanish Journal of Finance and Accounting/Revista Espanola de Financiacion y Contabilidad,44(1), pp. 47-71. Lidia, T.G., (2015). An analysis of the existence of a link between budgets and performance in economic entities.Procedia Economics and Finance.32.pp. 1794-1803. Makings, U., & et.al., (2014). Importance of budgets for estimating the input of groundwater- derived nutrients to an eutrophic tidal river and estuary.Estuarine, Coastal and Shelf Science.143. pp. 65-76. Senthilkumar, K., Nesme, T., Mollier, A. & Pellerin, S., (2012). Regional-scale phosphorus flowsandbudgetswithinFrance:theimportanceofagriculturalproduction systems.Nutrient Cycling in Agroecosystems.92(2). pp. 145-159. Vance, D., & et.al, (2016). The oceanic budgets of nickel and zinc isotopes: the importance of sulfidic environments as illustrated by the Black Sea.Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences.374(2081). p. 20150294.