Importance of Budgets for Twin Rivers Café

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.

Finance

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 budgets with a view to
improving overall business performance. The report also summarizes a thorough report about
variations in the actual revenue, costs and profits figures of the respective corporation. Further
report includes a significant variance activity and advises or recommends to companies that these
variances should be minimised.
TASK
A. Objective of preparing a budget for Twin Rivers Café:
Budgets are general revenues/sales forecasts and various expenses for the
specified period ahead and are typically framed and reviewed on a periodical basis. 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
activities are subject to financial budgets. The budget is main method used to monitor
expenditure and budgetary discrepancies by financial analysts (Vance and et.al, 2016). Company
should consider inconsistencies between plans and actual-costs by comparing the forecast with
actual figures. The bigger the variances, the bigger the need for managerial assistance. A budget
could help to set priorities, track progresses and make contingency planning, in addition to
apportioning resources. This also encourages the corporation to have those employees
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
directions as 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 he does 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 on basis of their
expectations.

Measuring performance: It is a universal aim of generating a budget, which is based on
budgeting differences, 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, like asset
acquisitions, most corporations apply the budgets. Though this is a valuable aim the evaluation
of capability constraint should 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 in short 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 in coming months is only a fair budgetary goal (Senthilkumar, Nesme,
Mollier and Pellerin, 2012).
Providing incentives: One of the objectives of preceding activity's budgets are to offer
incentives The fact that unusual departmental budget spreads are only absorbed in central
organizational budget at the ending of financial year can lead to rational, albeit inefficient,
decisions of using funds until they lost (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
Planning Actual Variance
Budgeted meals quantity (Qty.) 18000 17800 200
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

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 expenses of 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 in rent 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 variances activities in company Twin 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 in operating 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
and insurance services. there are substantial differences in all of these expenditures.
Renting facility is £800 higher than expected. While there are also higher insurance premiums
premium premiums than expected figure. Fuel costs are also higher than level planned.
Ignorance of this key variance leads to a downturn in the aggregate business performance.
Management should make sure to reduce the variance gape in 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/monthly reports 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 on Cafe business is
regarded, the planned earnings must be ascertained. In ascertaining the estimated sales, any
cyclical effect, inflations impact and further environmental impacts should 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 in operating 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
flows and budgets within France: the importance of agricultural production
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.