Analyzing Costs, Budgeting, and Financial Resource Management

This report provides a comprehensive analysis of financial resource management, covering various costing methods, budgeting techniques, and performance metrics. It begins with a detailed breakdown of prime cost, production cost, sales and distribution cost, and administration expenses, calculating total costs for an organization. The report then delves into budgeting and forecasting, variance analysis (including adverse variance), and flexible versus static budgets. Furthermore, it explores key performance indicators (KPIs) such as Average Daily Rate (ADR), Revenue per Available Room (RevPAR), Average Rate Index (ARI), and Market Penetration Index (MPI), demonstrating their application with examples. The report emphasizes the importance of these financial tools in achieving organizational objectives, controlling costs, and improving profitability. Desklib provides students access to this and other solved assignments.

Managing Financial
Resources

TABLE OF CONTENTS
SECTION A.....................................................................................................................................3
QUESTION 1...................................................................................................................................3
a) Prime cost ...............................................................................................................................3
b) Production cost.......................................................................................................................3
c)..................................................................................................................................................4
Sales & Distribution cost............................................................................................................4
Administration expenses.............................................................................................................4
d) Total cost.................................................................................................................................5
SECTION B.....................................................................................................................................6
QUESTION 4...................................................................................................................................6
1 Budgeting & forecasting..........................................................................................................6
2 Variance Analysis....................................................................................................................6
3 Adverse variance......................................................................................................................7
5 Flexible Budget........................................................................................................................7
6 Static budget ............................................................................................................................8
QUESTION 5...................................................................................................................................8
1 Average daily rate (ADR)........................................................................................................8
2 Revenue per available room (RevPAR)...................................................................................9
5 Average rate index (ARI).........................................................................................................9
6 Market Penetration index (MPI)............................................................................................10
7 Customer satisfaction.............................................................................................................10
REFERENCES..............................................................................................................................11

SECTION A
QUESTION 1
a) Prime cost
It is as well-known as h direct cost that play significant role in calculating direct cost h
such as COGS, labor, etc. It is highly important for the organization to compute direct cost in
order to offer goods & service (KHAMATKHANOVA, 2018).
Particulars Amount £
Add: Royalties 3600
Add: Raw materials used in production 320000
Add:
Labor costs directly connected with
production 200000
Prime cost 523600
On the basis of given above table it can be interpreted that total prime cost for the
particular given case is £523600. In addition to this, it can be calculated by estimating total raw
material & labor cost incurred for them manufacturing process. This help in understanding and
measuring the total cost of manufacturing inputs needed to formulate given output.
b) Production cost
In order to generate revenue organization pay attention on incurring few expenses for
offering goods to public which is termed as production cost (Zachosova, Herasymenko and
Shevchenko, 2018). There are number of factors which are involved in manufacturing process
and becomes essential to calculate in turn higher ability estimate profitability by covering all
related products can become possible.
Particulars Amount £
Add:
Royalties 3600
Raw materials used in production 320000
Labor costs of production 200000
Wages of factory supervisors 120000
Computer overhead 6000

Depreciation 13000
Other production overhead 70000
Total production cost 732600
On the basis of provided information it can be identified that there are several factors
which are taken consideration by company for producing goods. In the production process there
are number of actions which executed by enterprise for developing significant product. It
involves royalties, raw material, labor, wages, computer overhead, etc. This is the method of h
calculating economic input of resources in turn providing goods & service in effective manner
can become possible.
c)
Sales & Distribution cost
In the current competitive environment there are number of factors which are required to be
highlighted by organization for receiving competitive benefits. Selling and distribution refers to
executing crucial level of practice to meet the market forces. It allows the organization to deliver
goods to end consumer from the factor (Schleiter and Evans, 2022). It is one of the indicator that
is utilized to assess effectiveness.
Particulars Amount £
Add: wages for selling 18300
salary for marketing 25000
Sales staff commission 1200
Depreciation 6000
Total sales and distribution 50500
The above illustrated table is helpful in ensuring efficiency to deal with market forces
like demand and supply. In addition to this, it involves wages for selling, salary, sales staff
commission, etc. On the basis of this, it can be articulated that total sales & distribution expenses
incurred involves £50500. There are distinct kind of sales & management practices which are
exerted by for having depth insights to obtain smooth functioning.

Administration expenses
There are business actions which are needed to be planned, organized and controlled
for receiving appropriate level of outcomes. Administration procedure is one of the crucial part
of managing functioning of enterprise in respect to develop higher productive & systematic
working scenarios.
Particulars Amount £
Add:
salaries of administration
workers 90800
Computer overhead 3000
Interest on loan 3000
Depreciation 6700
Total administration cost 103500
From the evaluation of presented calculation it is recognized that there are few actions
which are implemented by firm for developing significant level of systematic ability to gain
productive results. In the current case the expenses which are executed by firm for managing its
administrating activities includes computer overhead, interest on loan, salaries of administration
workers.
d) Total cost
To achieve the organizational objective there are number of expenses which are
exerted by firm for having depth functioning (Arya, Mittendorf and Ramanan, 2022). For this
purpose company has given emphasis on conducting expenditure like prime, production, sales &
distribution and administration. It is showing that how much cost has been incurred to develop
particular processing for gaining sustainability & profitability.
Particulars Amount £
Total production cost 732600
Total sales and distribution 50500
Total administration cost 103500
Total cost 886600

In order to analyze the overall cost of organization in respect to conduct operational
activities includes production, sales & distribution and administration. These are the crucial
expenses which are executed by firm for having appropriate level of efficiency to offers goods.
Total cost derived from the analysis involves £886600 in which larger share is contributed by
production, then administration. In addition to this, the lowest expenses has been spent by
company on sales & distribution.
Working note:
Depreciation Amount £
For production
Machinery 8000
Building 5000
For sales
Building 2500
Delivery van 3500
Total depreciation 6000
For administration
Office fixtures and fittings 4200
Building 2500
Total depreciation 6700
Total depreciation 38400
Total depreciation of building, machinery, etc for the different kinds of department such
as production, sales, etc has been given to achieve depth understanding.

SECTION B
QUESTION 4
1 Budgeting & forecasting
It is associated with the process which determines and map out how organizational will
achieve its short and long term objective of controlling cost, higher profitability, etc. This
provides assistance in predicting the expenses which are required to manged and potential
profitability.
Particulars Month 1 Month 2 Month 3 Month 4
Fore casted unit
sales 15000 16000 17000 18000
Product price per
unit 10 12 14 16
Total gross sales 150000 192000 238000 288000
Less:
Sales discount &
allowances 10000 12000 14000 16000
Net sale 140000 180000 224000 272000
On the basis of above presented example it can be seen that budgeting procedure is
related with forecasting that inclining trend of net sales. It aids in assessing that revenue of
company will be increased.
2 Variance Analysis
This is one of the crucial technique to determine deviation by comparing actual with
budgeted (Masschelein, 2018). It can be favorable and negative so that relevant actions suitable
by identifying cause in turn achieving higher improved action can become possible.
Particulars Budgeted Actual Variance
Number of units
Material 22500 20000 2500
labor 20000 18000 2000
Overhead expenses 100000 80000 20000

Total Manufacturing cost 142500 118000 24500
By evaluating performance of provided as an instance it can be identified that variance
obtained is positive as the actual are less than budgeted for the expenditure incurred. In addition
to this, it can be articulated that total manufacturing in actual is less than budgeted.
3 Adverse variance
It is the practice in which actual outcome derived such as income is less than the
budgeted. In addition to this, there can be more expenditure in actual as compared to budget
(Ding, Gao and Liu, 2022)
Particulars Budgeted Actual Variance
Amount £ Amount £ Amount £ Amount £
Number of units * SP 2000*100 1800*90
Total sale revenue 200000 162000 38000(U)
Total Manufacturing cost
Material 22500 23000
labor 20000 28000
Overhead expenses 100000 142500 100000 151000 8500 (U)
Net profit 57500 11000 46500(U)
The above specifying calculation is showing unfavorable outcome as the income
obtained in actual is less than budgeted. In addition to this, expenditure derived from the actual
budget is less than estimated. It can be articulated that less unfavorable outcome is presenting
that adverse variance.
5 Flexible Budget
It adjusts to the alternating volume level which provides assistance in meeting changing
requirements in flexible manner (How To Create a Flexible Budget with Example, 2022). This
aids in accomplishing objective of organization to coordinate with changing situation.
Budgeted per unit cost Per unit
original
cost (50000
units)
Flexible
budget
(75000
units)
Flexible
budget
(100000
units)

s
variable cost
Indirect material 0.85 68000 80750 102000
indirect labor 0.95 76000 90250 114000
Total variable cost h 1.8 144000 171000 216000
Fixed cost
Depreciation for administration 3000 3000 3000
rent 2500 2500 2500
Total overhead 149500 176500 221500
The reflected example is indicating how effectively particular budget is calculating
cost for the changing number of units. It assists in making strategic decision so that higher
profitable outcome can be executed.
6 Static budget
This type of budget allows to incorporate with anticipated values. The number of static
budget are quite different from the actual. It has fixed nature which does not permit changing
and remain constant.
Particulars Actual Budgeted
Static
budget
Variance
Volume 52000 50000
batch cost 7600 8600 2000( F)
Fixed overhead 22000 20000 2000( F)
Total 29600 28600 1000(F)

The above presenting example is showing how well business is obtaining static budget. It aids in
resulting variance as static budget variance. On the basis of this h it can be identified that statistic
is fixed kind of budge which stick to the particular information for fixed budget.
QUESTION 5
1 Average daily rate (ADR)
It is associated with measuring the average rental revenue earned for the occupied
regarding the particular room (Hohenberg and Taylor, 2022.). It can be computed by using the
following formula in order to get the significant outcome. This is helpful in reflecting average
price paid by the customer for the hotel room.
ADR = Rooms Revenue Earned/Number of Rooms Sold
Particulars Calculation
Hotel with a room revenue 100000
Total number of rooms 1000
ADR for the organization 100000/1000 = 100
With help of this particular example it can be specified that average daily rate for the
mentioned company is £100. average daily rate for per room derived by particular
organization is 100.
2 Revenue per available room (RevPAR)
This is used to assess a hotel 's ability to fulfil its pertaining rooms at the average rate. It
is one of the successful indicator that helps in measuring success of the hotel so that relevant
course of action to get higher profitability can be achieved.
For instance- the sum of rooms in a hotel are, 300 which has occupancy rate of 85%. Average
cost spend via the hotel for particular room is £900. On the basis of this, revenue per available
room can be determined.
RevRAR = Per night cost * occupancy rate
= (900*85%) = £765

With help of the mentioned instance it can be interpreted that revenue obtained from the
per room available in the hospitality sector by the specified organization is £765. From
executing the operational activities of organizational in the particular hospitality sector is able to
offer it £765 revenue. Continuos inclination indicates how well business is improving in terms of
financial aspects.
5 Average rate index (ARI)
It is particular from of rate which is calculated to assess how the rates of hotel is high or
low as compared to other similar organization (Arrieta-Loitegui and et.al., 2022). In addition to
this, if its is lower than 1 it indicates that hotel is shaving averaged price lesser than competitors
and vice versa.
Particulars Calculation
Competitors ADR 1000
Room Revenue 150000
Total Number of Rooms 100
Organizations ADR (150000/100) =1500
ARI 1500/1000 =1.5
In the above given case it can be identified that competitors ADR is 1000 and own
organization has 1500. From the evaluation of the given case it can be analyzed that average rate
is 1.5. It is higher than 1 which indicates that averaged price as compare to competitor is greater.
6 Market Penetration index (MPI)
MPI aids in assessing how occupancy rate of hotel has as compared to other pre
determined competitors. This contributes In assessing how well organization is performing in
relation to the competitor. In addition to this, this aids in estimating how well business do as
compared to competitors.
MPI = occupancy rate of organization / Competitors set occupancy rate
For example-
Occupancy rate = 85%

competitors set occupancy rate= 80
MPI =85%/80%
= 1.0625
By analysing the above provided information it can be interpreted that particular hotel has
1.0625 MPI.
7 Customer satisfaction
In the current era, customer satisfaction is one of the crucial indicator of success. In the
hospitality sector the competition has inclined which required to pay attention on gaining
significant information related to customer satisfaction so that h higher profitable action can be
taken. It can be calculated by following below mentioned formula:
CS= (The total number of 8 of 10) / number of total respondents *100%
In this case, 72 out of 100 responses have been given by customer for rating 8 of 10
which articulates that 72% is the score of the organization.

REFERENCES
Books and Journals
Arrieta-Loitegui, M. and et.al., 2022. Effectiveness, safety and cost analysis of dalbavancin in
clinical practice. European Journal of Hospital Pharmacy. 29(1). pp.55-58.
Arya, A., Mittendorf, B. and Ramanan, R.N., 2022. In defense of limited manufacturing cost
control: Disciplining acquisition of private information by suppliers. The Accounting
Review. 97(1). pp.29-49.
Ding, X., Gao, B. and Liu, S., 2022. Understanding the interplay between online reviews and
growth of independent and branded hotels. Decision Support Systems. 152. p.113649.
Hohenberg, S. and Taylor, W., 2022. Measuring customer satisfaction and customer
loyalty. Handbook of Market Research, p.909.
KHAMATKHANOVA, M.A., 2018. Systematization of models anHow To Create a Flexible
Budget (with Example). 2022d methods in managing financial resources of
companies. Revista ESPACIOS. 39(18).
Masschelein, S., 2018. ACCT3323: Strategic Management Accounting. Available at SSRN
3126609.
Schleiter, P. and Evans, G., 2022. Prime ministers, the vote of confidence and the management of
coalition terminations between elections. West European Politics, 45(3), pp.528-549.
Zachosova, N., Herasymenko, O. and Shevchenko, А., 2018. Risks and possibilities of the effect
of financial inclusion on managing the financial security at the macro level. Investment
Management & Financial Innovations. 15(4). p.304.
Online
How To Create a Flexible Budget (with Example). 2022. [Online]. Available through:
<https://www.indeed.com/career-advice/career-development/flexible-budget#:~:text=A
%20flexible%20budget%20is%20a,a%20business's%20variations%20in%20costs.>