Managing Financial Resources - Desklib

This article discusses managing financial resources, including fixed cost, variable cost, budgeting, forecasting, and more. It includes calculations and examples to help understand the concepts. The article is relevant for students studying finance, accounting, or business management.

Managing Financial
Resources

TABLE OF CONTENTS
SECTION A.....................................................................................................................................3
QUESTION 2...................................................................................................................................3
a)..................................................................................................................................................3
Computing fixed cost..................................................................................................................3
Calculation of variable cost.........................................................................................................4
b) Computing money raise by event...........................................................................................4
SECTION B ....................................................................................................................................5
QUESTON 4....................................................................................................................................5
1. Budgeting and forecasting.......................................................................................................5
2. Variance analysis....................................................................................................................6
3 Adverse variance......................................................................................................................6
5. Flexible budget........................................................................................................................7
7. Direct labor variance...............................................................................................................7
QUESTION 6...................................................................................................................................8
Food cost sales Ratio :.................................................................................................................8
Food Average Spend :.................................................................................................................8
Revenue per available seat hour :................................................................................................8
Labor Cost :.................................................................................................................................9
Customer retention rate :.............................................................................................................9
REFERENCES..............................................................................................................................11

SECTION A
QUESTION 2
a)
Computing fixed cost
Fixed cost is concerned with indirect expenses which are incurred by the organization
irrespective of volume of goods and services(Fixed Cost: What It Is & How to Calculate It?
2022.). FC (Fixed Cost) is incurred by the organization for accomplishing organizational goals
and objectives which does not tend to change with inclining or declining volume of goods or
services. There are different kinds of FC which is implemented by business such as rent, etc.
Particulars Amount
Ballroom rental 2900
Entertainment 4500
Printing fixed 600
Decorations fixed 700
Total Fixed Cost 8700
On the basis of provided information it can be articulated that particular organization is
incurring 8700 as fixed cost. There are several types of he FC that has been spent by the
company for gaining the fluency in its operational functioning which includes ballroom rental,
entertainment, printing, etc. In addition to this, it can be interpreted that there are number of
benefits which can be derived through applying FC into operational activities (Răscolean and
Rakos, 2020). It basically aids in receiving the higher level of ability to cover and obtain
revenue. It helps in preventing the greater amount of ability to achieve economies of scale. The
main reason behind stating that it aids in achieving economies of scale by involving crucial
aspects such as appropriate calculation of price strategy.
In the given case, there are various expenditure which are executed by specific firm that
is contributing in total cost. Ballroom rent is considered to be fixed as every month without
making any changes, the other reason behind including it in FC is that with level of operational
activity it will be same. Entertainment expenses is FC which will be executed irrespective of
change in output so that significant calculation to manage functioning of event. In the printing &
decoration few parts has been recognized as fixed. On the basis of this, it can be interpreted that
sum of fixed cost incurred for the organization is higher. There are few crucial decision which

require information regarding fixed costs so that accurate, fair and reliable outcome can be
formulated.
Calculation of variable cost
It is associated with computing the expenses which re changing in proportion to selling
goods. It increased or decreases with level of change in the production activities (Hong and et.al.,
2018.). If the operational activity is increasing variable expenses will be inclined and versa.
There are different forms of such expenses such as commission, staff wages, etc. This aids in
gaining the benefit of estimating revenue in accurate manner via eliminating any manipulation. It
is found to be contrast to the fixed cost which is found be constant with changing sales volume.
Particulars Amount
Variable per guest printing 9
Variable per guest food 29
Variable per guest Decorations 5
Total Variable Cost per guest 43
From the analysis it can be recognized that per unit VC (Variable Cost) for the present
operational activity of event is 43. VC has been computed by including expenses such as per
guest printing, food and decoration. On the basis of this, it can be identified that is per unit
variable expense for event is 43 which might be fluctuated with increasing & decreasing. It is
calculated by having total quantity output multiplied by e variable cost per unit. With respect to
this, it can be recognized that there are several advantages of calculating VC which involves
planning & controlling, managerial decision-making, product pricing, cost control, inventory
changes, impact of FC, customer profitability, etc. from the evaluation it can be stated that these
are the benefit of determining VC.
b) Computing money raise by event
There are number of expenses which are incurred by the organization for gaining higher
profitability can be derived (Nassiri and et.al., 2019). For calculating the money raised by event
involves total variable & fixed cost. Profitability of the organization is determined by estimating
total revenue and cost.
Particulars Amount
Variable Cost per guest 43

Variable Cost for 3000 guests (43*3000) 129000
Total Fixed Cost 8700
Total Cost 137700
Number of guests 3000
Selling price each guest 100
Total sales 300000
Profit for Event Committee 162300
Net profitability ratio of event committee = net profit/ total revenue *100
= 162300/300000*100
=54.1%
The particular event organization has incurred both fixed & variable cost which is helpful in
gaining insights regards to total cots. The cot is lesser than total amount of revenue generated
such as 300000. Net profitability computed for the particular event committee is 54.1% which is
greater than the ideal margin that is 20%. In addition to this, company is getting higher than 50%
of profitability which is an indication of strong financial position. There are several aspects
which leading the company to obtain more margin of profit. The one of the main reason that has
been identified that fixed cots is less than variable. This reflects good financial position of
company in the event sector.
SECTION B
QUESTON 4
1. Budgeting and forecasting
In order to make the organizational process systematic with help of optimizing
resources. It is related with planning, organizing, managing and controlling monetary resources
so that higher ability to optimize the organizational fund can become possible (Mohr, 2019).
Forecasting with help of budgeted statement aids in making strategic decision.
Particulars Week 1 Week 2 Week 3 Week 4
Forecast-ed unit sales 20000 21000 22000 23000

Product price per unit 5 6 7 8
Total gross sales 100000 126000 154000 184000
-Sales discount & allowances 10000 12000 14000 16000
Net sale 90000 114000 140000 168000
On the basis of given information respect to net sales it is evaluated that from week 1 to
4 it is increasing. In addition to this, this helps in forecasting that prices along with number of
units sold will increase in upcoming week as well.
2. Variance analysis
This is one of the tool which is indicates the level of deviation in actual and budgeted
figures. There are number of components which helps in figuring out how effectively actually
company is performing as compared to budget.
Particulars Budgeted Actual Variance
Total sale revenue 200000 150000 50000
Material 22500 20000 2500
labor 20000 18000 2000
Overhead expenses 100000 80000 20000
Total Manufacturing cost 142500 118000 24500
Net profitability 57500 32000 25500
With respect to the given case it can be specified that there is huge difference net
profitability estimated as compared to actual. The actual figure is less which need to be
improved.
3 Adverse variance
It is associated with estimating variance by comparing actual with budget. In case actual
income is lower than original budget is considered to be adverse situation (Wegmann, 2019).
Expenditure is more in actual budget as compared to budgeted figures.
Particulars Budgeted Actual Variance
Amount Amount Amount Amount

Number of units * SP 3000*50 2800*35
Total sale revenue 150000 98000 5200(U)
Total Manufacturing Expense
Material 52500 53000
labor 30000 32000
Overhead expenses 10000 92500 11000 96000 3500(U)
Net profit 57500 2000 55500(U)
In order to evaluate the provided information it can be mentioned that company needs to
pay attention on focusing the adverse outcome which are derived due to less revenue & more
expenditure in actual in comparison with budgeted statement (Lutilsky, Liović and Marković,
2018). These are reflected by estimating that there are unfavorable outcomes which are presented
with help of U sign.
5. Flexible budget
It is related with fluctuating performance of organization and presenting the performance
according to changing circumstances. In addition to this, it can be recognized that it gets adjusts
with volume level of sales .
Budgeted per unit cost Per unit
Estimated
cost
(2000units)
Flexible
budget
(25000
units)
Flexible
budget
(30000
units)
SP(20) 20000 25000 30000
Sale revenue 400000 500000 600000
variable cost
Indirect material 1 20000 25000 30000
indirect labor 0.85 17000 21250 25500

Total variable cost h 1.85 37000 46250 55500
Fixed cost
Depreciation for administration 3000 3000 3000
rent 2500 2500 2500
Total overhead 42500 51750 61000
Profitability 357500 448250 539000
On the basis of this, it can be interpreted that sales volume is fluctuating and increasing.
In addition to this, along with sales, cost is inclining as per the shown figures. The one of the
crucial benefit which can lead enterprise to develop significant ability to coordinate with
circumstances.
7. Direct labour variance
It indicates the difference between actual performance and standard performance. It is
calculated by estimating direct labor variance.
Direct labor time variance = actual hour worked×standard rate per hour - Standard hour×
standard rate per hour
= 5*20- 3*15
= 100-45
=55
on the basis of this it can be interpreted that direct labor variance is 55.
QUESTION 6
Food cost sales Ratio :
It is the ratio which explains the average restaurant food cost percentage in between the
total cost of the food with the total sales which it generates. The formula for calculating this ratio
is dividing the food cost with the food sales and multiplying it with 100 for gaining the required
percentage. For example the total cost of producing sales in AFC restaurant is 5000 and the total
sales of that food has been calculated at 7000 therefore,

Particulars Amount$
Food Cost 5000
Food Sales 7000
Formula Food Cost/Food Sales *100
Ratio 71.42%
Food Average Spend :
The food average spend ratio is the calculation of the average spending for the food
organization in the whole year. This ratio helps in understanding the average spending of an
organization in the preparation of its food. Spending includes all the expenses including direct
and indirect. The formula for this ratio is sum of the total spending in for the whole year divided
by 12.
Particulars Amount$
Annual Cost of raw materials 80000
Fixed expenses per month @ 5000 60000
Annual Wages & Salaries 100000
Total Spendings 240000
Average Spending Formula Total Spending/12
Food Average Spend ratio 20000
Revenue per available seat hour :
It is the revenue management tool for food and beverages which helps hotels and
restaurant to use the and measure the usage and revenue of a seat per hour. It helps in the
organization in the better understanding and planning for the food and beverages for the
manager. The calculation of Revenue per seat hour is done through Total operating revenues
divided with the Available seat hours. For example,
Particulars Amount$
Total revenue 50000
Available seats 100
Available seat hours 12

Revenue per available seat hour Formula
Total Outlet Revenue / (Available Seats x
Opening Hours
Food Average Spend ratio 0.02
Labour Cost :
This cost is the estimation of the cost which is incurred on a unit of food production from
the labour used on it (Milling, 2019). The estimation of this labour cost is through the
multiplication of the direct labour hourly rate by the number of direct labour hours for the
production of one unit. For example the given hourly rate is $100, and the time take for
preparing 1 unit of food is 5 hours therefore the labour cost incurred is will be,
Particulars Amount$
Hourly wage of labour 100
Time taken for preparation of 1 unit of food 5 hours
Formula
(Hourly wage of labour * Time taken for
preparation of 1 unit of food)
Labour cost for the production of 1 unit for food 500
Customer retention rate :
This is the percentage of existing customers which remain customers of an organization
for and after the give period. It helps in understanding the ways in which the customers can be
kept in the company through different strategies and opportunities. The calculation of this rate is
done with the help of this formula,
[(E-N)/S] x 100
In which E is the number of customers at the end of the period, N is new customers
gained and S is the time period.
For example if the customers for an organization in the end of period is 600 and new
customers gained is 50 in a total of 100 days therefore,
= [(600-50)/100] x 100
= 550.

REFERENCES
Books and Journals
Hong, J. and et.al., 2018. A two-stage supply chain problem with fixed costs: An ant colony
optimization approach. International Journal of Production Economics. 204. pp.214-
226.
Lutilsky, I.D., Liović, D. and Marković, M., 2018. Throughput accounting: Profit-focused cost
accounting method. Interdisciplinary Management Research Xiv (Imr 2018).14.
pp.1382-1395.
Milling, M., 2019. Contribution Accounting–a planning and controlling tool to observe costs and
profit achievements within management decisions. 11.
Mohr, Z., 2019. Cost accounting systems and practices in public organizations: A framework for
understanding costing evolution and connections to sustainability strategies.
In Financial sustainability of public sector entities (pp. 145-164). Palgrave Macmillan,
Cham.
Nassiri, F. and et.al., 2019. Hospital costs associated with inpatient versus outpatient awake
craniotomy for resection of brain tumors. Journal of Clinical Neuroscience. 59. pp.162-
166.
Răscolean, I. and Rakos, I.S., 2020. The Influence of Costs on the Economic Substantiation of
the Decision with an Impact on Business Evaluation. Ovidius University Annals, Series
Economic Sciences. 20(1).
Wegmann, G., 2019. A typology of cost accounting practices based on activity-based costing-a
strategic cost management approach. Asia-Pacific Management Accounting Journal.
14. pp.161-184.
Online
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