Budgeting and Variance Analysis Report for Fleet Highlands Cafe

This report provides a comprehensive financial analysis of Fleet Highlands Cafe's budget, focusing on the objectives of budgeting, revenue and spending variances, and measures to maintain profitability and sustainability. The introduction defines budgeting and its role in projecting future income and expenses, emphasizing its importance for managing company expenditures. The report analyzes the budget for March, comparing budgeted and actual figures for revenue, raw materials, wages, utilities, facility rent, insurance, and fuel. It highlights significant variances, such as a 10% decrease in sales and adverse variances in fixed expenses like facility rent, insurance, and fuel. The analysis brings planned and actual figures to the same scale to provide a reliable estimate of variances. The report identifies key variances of concern to management and recommends strategies to address them, including promotion strategies to increase sales, negotiation for lower rent, and exploring cost-effective insurance and fuel-efficient equipment to maintain profitability and sustainability. References to relevant sources support the analysis.

FINANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
a) Objective behind preparing budget by Fleet Highlands Cafe .................................................1
b) Report showing the revenues and spending variances for march ?.........................................2
c) Variances of concern to management. ....................................................................................2
d) Measures for maintaining the profitability and sustainability of Fleet Highlands Cafe .........4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Budgeting refers to creation of spending plan of the organisation which is known as
budget. Budget allows the company to determine the the future incomes and expenses by making
projections. It involves balancing the incomes and expenses of company. Budgets are prepared in
planning process for ensuring that the expenditures of the company are under control. The report
is based over Fleet Highlands Cafe which prepares foods and meals for citizens in the kitchen
which is located near local airport. The report will include the need for preparing budget how it
helps the company in managing the profitability of the company.
a) Objective behind preparing budget by Fleet Highlands Cafe
Budget is prepared by the organisation for projecting the revenues and expenditures for
future. The projections for futures expenses and incomes are made on the basis of previous
trends and analysing the market situations and conditions. There are different methods for
preparing budget by the organisation where the company uses traditional method of preparing
budget. Main motive of the Cafe behind preparing budget is of making excess revenues over the
expenses for maximising the profits. Profits of the company could not be maximised by any
formula. It requires constant efforts and effective analysis of the market forces that could
influence the business (Lowe, 2019). It helps the organisation in estimating the incomes and
expenses and financial position of the company. Budgets help company in preparing the action
plan that is designed for carrying out the operations of company.
Highlands cafe by making projection for the future sales is able to make allocation of the
resources more effectively. This helps in making effective utilisation of the resources over
different activities being carried by cafe. This provides a direction to the company for achieving
its goals and objectives with the available resources. The objective behind preparing budget is
also to keep the costs and expenditures of the company under control. Departments are aware
through the budgets that they are required to carry out their operations within the specified limit.
It prevents the department to make overspending and makes them to reduce the wastage of
resources. At the end of the period variances between the actual and budgeted figures are carried
out for identifying the areas that are required to be considered by the organisation (Akeem,
2017). It enables the company to achieve its defined goals and objectives by making effective
utilisation of the resources.
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b) Report showing the revenues and spending variances for march ?
The budget reports is prepared by the Cafe for the month of March. The budget is
prepared taking the estimates of 20000 units to be sold at 5. Below table show the variances in
amount and in percentage considering 20000 units.
PLANNING ACTUAL Variances Variances %
Budgeted meals quantity
(q) 20000 18000 -2000 -10%
Revenues (£5.00q) 100000 90000 -10000 -10%
Expenses: 0
Raw material (£2.50q) 50000 45000 -5000 -10.00%
Wages and salaries (£5 500+
£0.25q) 10500 10000 -500 -5%
Utilities (£2 500 + £0.05q) 3500 3400 -100 -3%
Facility rent 5000 5500 500 10%
Insurance 2800 3200 400 14%
Fuel 2500 2800 300 12%
Net Operating Income 25700 20100 -5600 -22%
The above table shows the variances between the planned and budgeted figures. It could
be seen in the table that variances are seen in revenues and every item of expense. The variances
are considerable. Sales variance is 10% negative which means company is not able to sell the
units as estimated for the period which reduced the estimated revenues of cafe by 10%. the
selling price per unit has not changed. Raw materials show variance of 10% due to decrease in
the units manufactured. The variance seems favourable as the expense is low as compared with
budget. Similarly wages and utilities expenses of the cafe also show favourable variances as
units sold have reduced. Variance in facility rent of the cafe are adverse as the actual rent has
increased by 500. The insurance expense of the cafe has increased from the budgeted figures.
The fuel charges are for running manufacturing process that has also increased from the
budgeted figures resulting in adverse variances (Ugoani, 2019). Variance in profit levels is
highest as compared with the revenues and is adverse for cafe.
c) Variances of concern to management.
Variance analysis refers to quantitative investigation of the actual behaviours with the
planned or budgeted figures. It enables the company to identify the areas that are affecting the
budget. On the basis of variance analysis it identifies the variations between all the income and
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expenses of the company. On the basis of variances identified company undertakes the different
steps for removing the variances.
Taking the Planned 18000 units
PLANNING ACTUAL Variances Variances %
Budgeted meals quantity
(q) 18000 18000 0 0%
Revenues (£5.00q) 90000 90000 0 0%
Expenses: 0
Raw material (£2.50q) 45000 45000 0 0%
Wages and salaries (£5 500+
£0.25q) 10000 10000 0 0%
Utilities (£2 500 + £0.05q) 3400 3400 0 0%
Facility rent 5000 5500 500 10%
Insurance 2800 3200 400 14%
Fuel 2500 2800 300 12%
Net Operating Income 21300 20100 -1200 -6%
It is to be ensured that not all the variations identified between the budgeted and actual
figures are of importance. It has to select the variances that are of major importance to the
organisation. To carry out an accurate and reliable estimate of the figures company is required to
bring the budgeted and planned figures on the same scale. Previous analysis was carried out
taking the total units as 20000 that do not provides the reliable estimate of the actual variances.
Since only 18000 units were sold in actual which means the variable cost of the units should be
calculated taking the units produced or sold. The variances for the variable expenses is calculated
by brining the planned variable expenses to 18000 units. The above table shows that bringing the
units of planed and actual on same scale there are no variances seen in the revenues of the
company. Selling price of units have not changed during the month that has caused the variances
in revenues to nil.
On the other variable expenses of the cafe like raw materials have not shown variances as
per unit cost of material has remained constant. Similarly in the case of wages and salaries
expenses of wages is variable and salaries are considered fixed. Salaries and wages of company
do not show variance in the budgeted and actual figures (Bai, 2017). Utilities expenses of the
cafe has also remained same as it is a variable expense and per unit cost is constant over the
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month. The above analysis shows that variances between the revenues and variable expenses are
nil as per unit price of the products have remained constant for period.
Major variances of concern to management are its fixed expenses and the sales units. Fixed
expenses of the company includes facility rent, insurance expense and fuel. Facility rents shows
adverse variance of 10% which means rent expense has increased by £500. Insurance expense of
company has increased by £400 reflecting adverse variance of 14%. Fuel expense of the cafe are
raised to £2800 resulting in adverse variance of 12%. this has the profitability variance of
adverse 6%.
d) Measures for maintaining the profitability and sustainability of Fleet Highlands Cafe
There has been decline in the sales of units. Cafe is required to undertake promotion
strategies for promoting the business and increasing sales for reducing the variances of sales
units. It will reduce the variance of variable expenses automatically as they are dependent over
the number of units sold. It is also required to ensure that per unit cost of the products do not rise.
Major focus is required to be given over the fixed expenses. Cafe negotiate the rent with the
owner of the place or cafe for reducing the rent. It could analyse the market rate of the area and
ensure whether the rent charged is higher. Negotiation will help the cafe in reducing the
variances in facility rent. Cafe could search for other insurance company which is charging lower
premium for the insurance. Insurance expenses are difficult to control, however it could search
for other alternatives (Kenno and et.al., 2020). Fuel charges show a variance of 12% for the
month. Fuel charges are controlled by the international markets. However cafe could adopt for
equipments that are more fuel efficient. It will reduce the consumption of fuel and reduce the
variances in fuel charges. Adopting these measures Cafe would be able to maintain its
profitability and sustainability.
CONCLUSION
From the above study it could be concluded that budget helps the organisation in
planning its future incomes and expenses. Budget enable the company to make effective
allocation of the resources between departments for making optimum utilisation of the resources.
It helps in controlling the cost of the products and in achieving the required level of profitability
and maintaining sustainability.
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REFERENCES
Books and Journals
Lowe, E.A., 2019. On the idea of a management control system: integrating accounting and
management control. Management Control Theory. p.63.
Akeem, L.B., 2017. Effect of cost control and cost reduction techniques in organizational
performance. International Business and Management. 14(3). pp.19-26.
Ugoani, J., 2019. Budget Management and Organizational Effectiveness in Nigeria. Business,
Management, and Economics Research. 5(2). pp.33-39.
Bai, N., 2017. Discussion on Financial Budget Management System of Modern Logistics
Enterprises.
Kenno, S., and et.al., 2020. Budgeting, strategic planning and institutional diversity in higher
education. Studies in Higher Education. pp.1-15.
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