Coastal Restaurant Pty Ltd: Detailed Cost and Performance Management

This report provides a comprehensive cost and performance management analysis for Coastal Restaurant Pty Ltd, focusing on cost control, cost measurement, and performance variance analysis. It identifies key cost control areas such as employee wages, water charges, repair and maintenance, and credit card commissions, offering recommendations for improvement. The report analyzes cost drivers like the number of employees, transactions, and catering orders, linking them to cost fluctuations. A performance variance analysis compares budgeted and actual values, highlighting favorable revenue variances and adverse expense variances. The report concludes with no-cost initiatives to improve efficiency and handle increased sales, emphasizing employee encouragement and customer offers. Desklib offers more solved assignments for students.

COST AND PERFORMANCE MANAGEMENT

Contents
INTRODUCTION...........................................................................................................................2
COST CONTROL...........................................................................................................................3
COST MEASUREMENT ANALYSIS...........................................................................................5
PERFORMANCE VARIANCE ANALYSIS.................................................................................7
RECOMMENDATION...................................................................................................................9
CONCLUSION..............................................................................................................................10
Bibliography..................................................................................................................................11

INTRODUCTION
The cost analysis is one of the most important task of the management as it helps it to understand
the nature of costs, adopt cost control techniques, setting of sale price, formulate future plans and
take appropriate measures. Thus, the management prepares budgets about its expected costs and
sales and prepares a framework for itself to work within it. This is somewhere like setting a
target for itself and working towards achieving such targets. The following report, with reference
to a case study, discusses about cost control, cost measurement analysis, performance variance
analysis and recommendations on the basis of such analysis.

COST CONTROL
Control of the entity over the cost of its business operations is called cost control. This is
basically when an organization exercises its control over its various expenditures so as to reduce
it without compromising with its revenues. Cost control basically begins with monitoring of
expenditures and performance of the business. It is a boarder term than cost reduction and
verifies whether the expenditures are made as per budgeted plans and policies. It is basically
done to establish fulfillment of business objectives. The planning & preparing budgets,
monitoring the actual performance against what was budgeted and taking proper initiatives on
that basis forms a part of cost control.
The following case study relates to Coastal Restaurant Pty Ltd which are well known for
customer service, ambience and rich premium continental dishes. The owner of the restaurant,
Ricky Martin, is expecting an increase in customers after their acquiring of BYO license from
the local council that the competitive restaurants lack it. He wants a cost analysis of all the costs
he is incurring and might be incurring due to this new license. Therefore, as a revenue manager,
a comparative analysis is to be prepared between the actual and budgeted performance of the
company.
Considering the data provided in the income statement, the costs control areas identified are
employee wages of both permanent and temporary nature, water charges, repair & maintenance,
credit card commission and superannuation for employees. Let us have a discussion about the
above costs, how they are evaluated and how they can be controlled in future for better cost
management :
 It is important for an organization to hire the most efficient employees so that an increase
in productivity can be visualized. The reason behind this is less efficient workers would
lead to increase in labour hours which is turn would lead to increase in labor costs. In
terms of productivity, there would be more idle time because of lack of efficiency in
labours. Having a high number of employees also increases the superannuation costs over
the organization. In the following case, there are 9 permanent employees and casual
employees are more than the permanent ones. The performance variance analysis shows
an adverse cost of $105,000 in case of permanent employee wages, $110,000 in case of

temporary employees wages and $10,450 in case of superannuation expenses. Thus, a
total of $225,450 adverse costs is incurred. Such costs can be reduced by a quality check
analysis of its employees, that is, retaining only the most efficient employees that add a
value to the productivity. This, would give a return value to the company against the
wages cost it incurs in terms of quality and efficiency.
 Water charges are a result of providing bottled water to the customer for free in
replacement of packaged drinking water so as to cut down plastic usage. It somewhere
resulted in increase of water usage. The company's policy of providing it for free might
work against it in a sense that customers might take an advantage of such free services
and every one in twenty customers may turn up at the restaurant for having free bottled
water. Therefore, the company can charge a price against such bottled water which can be
set at the cost price or less than the actual cost. This would result in reduction of water
usage costs which currently shows an adverse cost of $2,400.
 In connection with the discussion above regarding inefficiency of the employees, the
company also experienced an unexpected equipment failure during the month of
December that eventually resulted in increase in repairs & maintenance costs. The
company incurred an extra adverse cost of $900. This can be because of labor
inefficiency as already discussed above. Thus, hiring of efficient and knowledgeable
labors would result in efficient use of equipments.
 The credit card commission is a commission paid by the merchant on accepting credit
cards from his customers. The hotel accepts credit card payments and as a result, there is
an adverse cost of $4,530. In the world of technology, it is required for the hotels and
every other merchant to entertain online payments but at the same time, the management
can adopt a wise policy to reduce its credit commission charges. One such policy can be
determining an amount below which only cash payments would work and not credit
cards. For example, credit cards are accepted only if the bill amount exceeds $2,000. This
eventually won't reduce the number of customers and the company would reduce its
associated costs. Also, customers billing around $1500-$1800 might make it more than
the decided amount so that credit card payment can be made. Thus, such a policy would
work in the company's favor in every way.

COST MEASUREMENT ANALYSIS
Cost measurement is identifying the basis for measuring costs that eventually measures the
performance of the cost control. Such basis is called cost driver which defines an activity of an
organization. For example, the canteen expenses are based on the number of workers. So,
number of workers is a cost driver for canteen expenses and this cost driver would be used to
measure the canteen expenses.
Coming to our case study of Coastal Restaurant Pty Ltd, the various cost drivers identified are
number of transactions, price inflation, number of employees and catering orders received. Let us
have an analysis about above mentioned cost drivers and how such basis impacts the costs or
cause costs fluctuations and what could be done to minimize such costs (Atkinson, 2012).
 Number of employees: with this cost driver, the costs associated are wages costs,
superannuation costs, repairs & maintenance costs and cleaning costs. The more efficient
the employees are, the lesser is the incurred unnecessary costs or better are the returns
against incurred costs (Siciliano, 2015). This is because business operations are a result
of employees work. Therefore, it is important for a management to hire the most efficient
workers so as to not have adverse costs. In the following case, the company is incurring
high wages costs as well as high superannuation expenses, increase in repairs costs due to
equipment failure and increase in cleaning costs. Had the employees been qualitative,
there wouldn't have been an equipment failure, the cleaning procedures would have been
qualitative and idle time cost wouldn't have occurred. Also, an increase in productivity
would be experienced with qualitative employees (Berry, 2009). Therefore, as already
discussed Coastal should have an efficiency check of its employees or should go for some
training practices of its existing employees.
 Number of transactions: The costs associated with this cost driver are bank charges and
credit commission charges. An increase in number of transactions is a positive signal for
a business and that is why, bank charges are the costs the company has to incur.
However, credit commission charges are still a controllable costs and the management
can adopt a policy as already discussed under the context of cost control.
 Catering orders received: The number of orders received results in hiring of kitchen
utensils which in turn, indicates an increase in sales revenues along with certain

expenses. In the present case, we see a favorable cost of $300. However, it is also a bad
indicator in terms of expectations, that is, the orders received are less than the orders
expected to be received. Thus, the company should advertise about its services which it is
already incurring more by advertising in newspaper even along with social media
advertisements (Boyd, 2013).
 Price inflation: Inflation in price is an uncontrollable factor for an entity. The
organization cannot control inflation over the prices. The current case shows an increase
in property insurance by $105 due to price inflation. Thus, all a company can do is enter
into some profitable or hedging agreements to protect itself from such inflation losses.

PERFORMANCE VARIANCE ANALYSIS
The performance variance analysis is an analysis prepared to understand the differences between
the budgeted and actual values. The variances are considered favorable if (Datar, 2015) :
 Actual revenue is more than the budgeted revenue ; and
 Actual expenses are less than the budgeted expenses.
However the reverse of the above two points would result in adverse situations for an
organization (Girard, 2014).
PERFORMANCE VARIANCE ANALYSIS
Particulars Budgeted
Cost ($)
Actual Cost
($) Variance ($) Status
Income
Restaurant Sales 564000 846000 282000 Favourable
Sale Of Goods & Services 40000 60000 20000 Favourable
Total Sales 604000 906000 302000 Favourable
Less : Cost Of Sales 165000 209000 (44000) Adverse
Gross Profit 439000 697000 258000 Favourable
Expenses
Bank Charges 825 900 (75) Adverse
Property Insurance 1050 1155 (105) Adverse
Casual Employee Wages 115000 225000 (110000) Adverse
Cleaning Cost 1080 1485 (405) Adverse
Credit Card Commission 9060 13590 (4530) Adverse
Electricity/Gas 33000 36000 (3000) Adverse
Vehicle Delivery Costs 2700 1800 900 Favourable
Kitchen Utensils Hire 1200 900 300 Favourable

Advertising 2625 3750 (1125) Adverse
Netflix Subscription 900 900 0 -
Permanent Employees
Wages 210000 315000 (105000) Adverse
Public Liability Insurance 840 840 0 -
Repair & Maintenance 2250 3150 (900) Adverse
Superannuation For
Employees 30875 41325 (10450) Adverse
Waste Removal 1620 1440 180 Favourable
Water Charges 8400 10800 (2400) Adverse
Website Hosting Expenses 2663 2663 0 -
Total Expenses 424088 660698 (236610) Adverse
Month Net Profit/(Loss) 14913 36303 21390 Favourable
In the current case of Coastal Restaurant Pty Ltd, the total revenue shows a favorable variance
of $302,000, gross profit shows a favorable variance of $258,000, net profit shows a favorable
variance of $21,390 and the total expenses show an adverse variance of $236,610.
The favorable variances in revenues and profits truly compensate with the adverse variance in
expenses, that is, where the management incurred extra expenses, it has earned more than
budgeted revenues even (Holtzman, 2013). Thus, in terms of variances, the analysis shows a
55% adverse/over expenditure than the budgeted expenditure but on the same hand, the net profit
shows a favorable percentage of 143.44% over the budgeted net profits. Thus, indicating the fact
that the company has regular & high revenues. Also, the getting of a new license would be
bringing some more customers with it. Only, if certain costs are controlled, the revenue income
can be boosted with the most efficient and effective business operations (Horngren, 2012).

RECOMMENDATION
The Coastal Restaurant Pty Ltd expects an increase in customers which in turn means more
revenue would be earned along with associated expenses. Thus, after having a detailed
discussion about cost control, performance analysis and cost measurement analysis, we shall
discuss certain no cost initiatives that would result in handling of increased sales :
 Encouraging Employees: Staff personnel are an asset for any business. Thus, it is
important for a business to keep its employees happy and provide them a job satisfaction.
Thus, the management can adopt practices of appreciating employees such as providing
gifts to the most hardworking employees, announcing 'employee of the month', adding
variety to the employee's job, inviting ideas from employees, etc (Jensen & Meckling,
1976). All such practices would boost morale and confidence among the employees
leading to more sales and in fact, better handling of sales. Also, the expenses would be
controlled with such qualitative employees (Seal, 2012).
 Providing offers to customers: Usually, such offers are prepared at a price which is more
than the breakeven point but less than the sale price. Such offers would attract customers
and would result in increase in sales (McLaney & Adril, 2016). The profit might be less
but increase number of customers would result in having the estimated profits.
 Analyzing monthly results: Monitoring the results on a monthly basis is better than the
yearly basis as any discrepancy occurring in a particular month can be taken care of and
controlled. This would provide efficiency into the business as monthly monitoring of
performance would help the management to take better initiatives and avoid unnecessary
costs.
 Supervising : It is important to supervise the work of employees to ensure their quality
and efficiency in their work. Also, supervising the working of equipments and other
machines would ensure their proper functioning and avoid any unexpected failures.
All such initiatives would boost the sales of the company with no cost but with just formulation
of certain plans and policies. It would help the company to handle the increases sales with no
chances of discrepancies. Thus, Ricky should consider the above recommendations (Menifield,
2014).

CONCLUSION
The management is expected to have effective and efficient business operations for a long term
sustainability. It might be earning high revenues but consistency comes with smooth functioning
of a business (Noreen, 2015). Such smooth functioning depends on various factors such as staff
personnel, management supervision, internal controls, monitoring the overall performance,
periodic quality check, etc. Thus, certain organizations prepare a different department for such
monitoring and check up activities. Otherwise, the management works on every such factor for
ensuring such smooth functioning. Also, long-term sustainability comes as a result of
management's efficiency along with favorable profits.

Bibliography
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