SITXFIN003 Manage Finances Within a Budget - Case Study

This case study is about JJ's Bistro located in Jackson's hotel. It seats 210 people and is open for lunch and dinner, seven days a week. The case study requires the learner to calculate and report on budget deviations. The learner is required to complete Tasks 1, 2 and 3 in Assessment D and answer the questions based on the outcomes in the comparative analysis report, Bistro purchasing budget - May and the case study information. The case study is about managing finances within a budget and applies to tourism, travel, hospitality and event businesses.

SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
ASSESSMENT D – CASE STUDY (PART 2)
INSTRUCTIONS (for assessments not embedded within the LMS)
 The assessment must be written using an industry standard software package such as Microsoft
Word, Excel, PowerPoint, etc.
 Name the file using the assessment task number and then save your file.
 Ensure your submission identifies the unit code and title, the assessment task number and the name
of the assessment at the top of the page. Alternatively, you may place this information in the
document header.
 Add your name and student number to the header or footer on every page.
 On completion, submit your assessment to your assessor via the LMS.
This unit applies to tourism, travel, hospitality and event businesses. While the case study
scenario is based on a hospitality business, the principles for managing a budget demonstrated
in this assessment are the same in all types of businesses.
Learner assessment guide and evidence
This assessment requires you to calculate and report on budget deviations.
You are required to do the following.
 Complete Tasks 1, 2 and 3 in Assessment D.
 Read the scenario and answer the questions.
 Any budget calculations can be completed manually, using account software or computer-
based spreadsheet software, such as Microsoft Excel or Google Sheets.
Case study
JJ’s Bistro is located in Jackson’s hotel. It seats 210 people and is open for lunch and dinner,
seven days a week. The hotel promotes a family environment and has a playroom for younger
children and an activity centre for pre-teens containing electronic and other games. These
glass-walled play areas are within view of customers seated in the rear section of the bistro.
The following events took place during the May budget period.
 Prices for meat, fruit and vegetables have increased as a result of recent drought in some
regions and floods or storms in others.
 Prices for many wines have fallen due to a glut in the market.
 Beer prices have risen slightly, again due to the drought leading to shortages of ingredients
and an increase in government taxes.
 Most utility companies increased prices by 7% at the start of May.
 The local police started a blitz on drink driving in the middle of May with increased police
presence in local suburbs and roadside testing of drivers.
 In-house training was provided to key food and beverage staff in April by a coffee supplier.
The aim is to increase sales and the quality of coffee served. The training was free of charge
as part of a new preferred supplier contract with the coffee supplier.
 A major wine supplier has been running an in-house promotional campaign, with staff
training provided to help increase product knowledge.
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
 The bistro menu changed to the new winter menu on 1 May 20XX. It was heavily promoted in
May throughout the hotel and in local community newspapers.
Task 1: Interpret budget results
 Go to your Course files folder and open Assessment D_Bistro May budgets.
 Evaluate the budget outcomes and their impact on the operation and financial goals of the
bistro.
 Answer all questions based on the outcomes in the comparative analysis report, Bistro
purchasing budget – May and the case study information.
Q1: Discuss how the outcomes food and beverage sales and costs of sales indicated in the
May comparative analysis report impact the bistro area and the business overall. Consider
the types of deviation (positive or negative) and size of the deviations in food, beverage
and total sales and cost of sales categories.
The hotel has the variance % of 2 and 1.5 in food and beverage sales respectively. This is
not good for the hotel since such variances are the cause that the hotel ends up in
incurring more costs and hence, the reduced profit. The variance is negative for both.
This affects the sales of the food and the beverages sine if the prices are more, then the
customers may not be inclined in purchasing them and this would in turn affect the sales
of the hotel as well.
Q2: What are two possible explanations for the deviations in food costs and beverage costs?
Consider information provided in the May purchasing budget as well as the comparative
report and case study information.
The following could be the causes:
 The price per unit could have gone up due to change in the market conditions.
This could be seen from the hotel of 2 and 1.5 in the sales of food and beverages.
 The company could have been purchasing the individual quantities of the food
since if the hotel would have been purchasing in bulk, it would have been charged
less per unit.
Q3: When preparing the budgets, the hotel forecasted food costs as 37% of food sales and
beverage costs as 30% of beverage sales.
Is the bistro meeting organisational goals for cost of sales? What is the difference
between the budget target and actual results?
 Food purchases
In respect of food purchases, the hotel has the variance of $16,675 which is not good.
Hence, the hotel is not meeting the organisational goals.
 Beverage purchases
In respect of beverage purchases, the hotel has the variance of $6,084 which is good.
Hence, the hotel is meeting the organisational goals.
In nutshell, Bistro is not meeting the organisational goals.
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
Q4: Should these deviations be reported to management? Explain why/why not.
Yes, the deviations in respect of the food purchases must be reported to the management due
to the issue that these have the variation of about 8.7% and also since this form the part of the
direct costs for the hotel.
But the variation for the beverage purchases may not be reported to the management since this
is a favourable variance.
The food costs $45,865 which accounts to 60.93% of the total cost of sales whereas the
beverages cost about $29,399 which contributes to about 22.98% of the total cost of sales.
These are major variances and hence, the same must be reported to the management so that it
can look into ways to reduce these.
Q5: Based on the May purchasing budget, in what categories are the largest food and
beverage cost deviations occurring?
The major variances occur in the following categories:
 Beverage purchases
 Food purchases
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
Task 2: Investigate option to improve performance
The food and beverage manager is very concerned about the food and beverage purchasing
and cost of sales results. They want the bistro team to make it a priority to meet budget targets
for cost of sales in June. Management then plan to reduce budget allocations for food and
beverage purchases in the September quarter budget. It is an organisational goal to reduce cost
of sales to below the current percentages of 37% food cost and 30% beverage cost. To meet
June and September quarter budget targets, new methods of managing costs must be
investigated.
 Go to your Course files folder and open Assessment D_Bistro May budgets.
 Answer all questions based on the outcomes in the comparative analysis report Bistro
departmental budget – May, Bistro purchasing budget – May and case study information.
Q1: List four options for managing costs that could be applied to this situation.
The following are the 4 options for managing costs:
 Purchase the food and beverage items in bulk so that the hotel gets quantity
discount. The amount of the food could be ascertained in kgs and then the rate per
kg could be negotiated.
 The actual costs must be revised on the basis of the changing market conditions.
 The wages costs must be cut down. The overtime must be allowed to the workers.
 The unnecessary expenses must be eliminated.
Q2: You have decided to source new fruit and vegetable and seafood suppliers. Describe how
you would investigate if changing suppliers is a viable option for reducing your cost of
sales. How will you obtain information to determine if prices and product quality from
alternate suppliers are appropriate for your operation?
There are few of the factors that must be considered before changing the supplier:
 Better value for money of supplier
 Need to cut down the costs to increase the revenue
 Found a better supplier who could help in business growth
An in house can conduct and investigation to look into viable suppliers.
Q3: You need to investigate which current suppliers have increased prices for products and
services, how much prices have risen and how much of the business’s financial resources
are allocated to existing suppliers.
What organisational financial documentation will provide this information?
A financial table must be prepared which shows the prices that have been charged by
each supplier in each month and then the variances could be calculated accordingly. The
financial documentation required would include the vendor payment receipts, the invoices
received for the payment etc, cash book.
For these purposes, the bills raised by the different suppliers are required to be
investigated.
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Q4: Your research has revealed that a number of other suppliers can supply similar quality
items at cheaper prices than your current supplier. Describe what you would discuss with
your current supplier before making a decision.
The discussion could include the fact that the hotel is getting offers for cheaper quality of
the supplies and if the current supplier could match the same, then the current suppliers
could be retained and otherwise not.
Q5: Who would you consult with before implementing any changes to the hotel’s suppliers of
fruits and vegetable and seafood products?
The purchasing department head is the one to be consulted before making any decisions.
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
Task 3: Improve budget performance
 Go to your Course files folder and open Assessment D_Bistro May budgets.
 Read and interpret the information and outcomes contained in the Bistro labour budget –
June quarter.
 Evaluate their impact on the operation and financial goals of the bistro.
 Answer all questions based on the labour comparative analysis report, staffing and case
study information.
Q1: Complete the table below by inserting the variance percentage for each category in each
month.
Category Bistro labour budget – variance percentage
April May June June quarter
Salaries 0 0 0 0
Front of house -15.8 -16.3 -14.4 -15.5
Kitchen -20 -20.9 -20.5 -20.5
Total labour -15 -15.6 -14.3 -15
Q2: What do these statistics tell you about the bistro’s performance for the June quarter?
Explain what the variances mean and how this affects the department’s ability to meet its
financial goals.
The bistro is consistently not meeting the labour budget. The above table tells us the fact
that the hotel has been incurring more costs. And these variances are somewhat steady.
This table shows that it is due to this reason that the hotel is not able to meet its financial
goals.
The variances show that the hotel has been paying more as against the amount that it
should have paid for the supplies and this is what holds back it from meeting the financial
goals.
Q3: Management think one reason for high bistro labour costs is the department is
consistently overstaffed; more staff than necessary are rostered on for most service
periods. Rosters have been reviewed and new staffing levels suggested for front of house
and kitchen areas. The number of customers served, and sales revenue is expected to
remain relatively stable in the near future.
Review the bistro’s current and revised staffing levels in Bistro staffing levels table in
Assessment D_Bistro May budgets.
Discuss the impact these changes could have on customer service levels, your team and
budget targets. Consider both positive and negative outcomes.
The numbers mean that the hotel would reduce the staff as per the requirement. This is
good since this would reduce in the wages and the on-costs which forms the major % of
the total expenses that the hotel has been incurring.
The effect of this is the fact that this would reduce the wages costs for the hotel.
The positive impact would be that the hotel would incur less costs and the negative impact
would be that the staff may feel more pressurised in terms of work.
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
Q4: What payroll documentation can you use to maintain detailed records and monitor funds
allocated to labour costs during the budget period?
The following could be done:
 Worker/employee resumes and job applications
 position statements and job advertisements
 performance reviews
Q5: During the initial investigation phase, with whom would you discuss the reasons for
changes to rosters and the desired outcomes of the changes?
The changes, if any, would have to be discussed with the workers team association, the
managers, supervisors and the top management.
Q6: You believe the changes will have a negative impact on customer service standards and
food quality, leading to an increase in customer complaints. This could lead to lower
customer numbers and sales revenue over the next year.
You want to present your concerns to management and recommend smaller cuts to
staffing levels, especially to the front of house team during the busiest periods. Your
suggestions include better management of hours worked by casual staff and a review of
service procedures to streamline work practices.
Prepare a transcript of your recommendations to be presented to management at the next
management meeting.
The cutting down of the staff beyond a certain level could lead to customer complaints and
also lead to a reduction in the amount of sales revenue and hence, it is very important to
consider the reduction in terms of staff. Hence, there are few of the recommendations that
could be applied:
 Better management of the schedules
 Flexibility in time
 Part time employment
 Better allocation of the staff
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SITXFIN003 MANAGE FINANCES WITHIN A BUDGET – Case study
Assessor checklist
To be completed by the assessor.
Learner’s name:
Did the learner successfully
demonstrate evidence of their ability to
do the following? Assessor comments Completed
Yes No
Discuss changes to income and
expenditure priorities with appropriate
colleagues prior to implementation.
Consult with and informs relevant
personnel about resource decisions.
Use financial records to regularly
check actual income and expenditure
against budgets.
Use problem solving skills to identify
and report deviations according to
significance of deviation.
Investigate appropriate options for
more effective management of
deviations.
Assess existing costs and resources
and proactively identify areas for
improvement.
Discuss desired budget outcomes
with relevant colleagues.
Undertake appropriate research to
investigate new approaches to
budget management.
Use numeracy skills to interpret and
use budget figures in day-to-day work
operations.
Interpret business and financial
documents and document clear
recommendations based on budget
information and reports.
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