Financial Management Report: Adfirm Gala Dinner Financial Analysis

This financial management report analyzes the impact of cost-cutting measures on the profit performance of a food outlet within a branded hotel, specifically focusing on the Adfirm Gala dinner. The report explores cost management principles, including fixed and variable costs, direct and indirect costs, and controllable versus non-controllable costs. It then delves into variance analysis, examining sales revenue variance and direct material cost variance, providing recommendations for improvement. The strategic analysis section evaluates the financial, customer, organizational process, and employee impacts of the identified variances. The report concludes by summarizing the key findings and emphasizing the importance of financial management in achieving organizational objectives. The report offers an in-depth look into the financial strategies and their impact on the business.

Financial Management

Contents
INTRODUCTION...........................................................................................................................................3
PART 1.........................................................................................................................................................3
Describe how cost-cutting measures can influence the profit performance of a food outlet within a
branded hotel and potential non-financial implications resulting from it...............................................3
PART 2.........................................................................................................................................................5
Variance Analysis & Recommendations..................................................................................................5
PART 3.........................................................................................................................................................6
Strategic Analysis.....................................................................................................................................6
CONCLUSION...............................................................................................................................................7
REFERENCES................................................................................................................................................8

INTRODUCTION
Financial management entails a variety of tasks. The financial activities are planned,
organized, directed, and controlled through these operations. Administrative duties including
purchasing and usage of company money are element of capital administration in investment
companies. Any company's monetary management is faced with a critical duty. Regulating,
coordinating, and managing financial resources are all part of it. Such actions are carried out in
order to meet the aims and goals of the firm. This report based on the hotel brand Adfirm Gala
dinner which is Australia based hotel. In this report consist of financial issue that face by the
hotel and calculate different variances that related with the issues. Along with define how these
variances impact on the strategies objective of the company in direct manner.
PART 1
Describe how cost-cutting measures can influence the profit performance of a food outlet within
a branded hotel and potential non-financial implications resulting from it
Cost Management
Cost is the monetary value of all sacrifice of resources made to achieve an objective that
associates with cost management in controlling operation costs and financial management due to
production or other cost activities (Baker, Kumar & Pandey, 2020). According to Lawal (2017),
cost reduction is considered the success of real and unchanging reduction in the unit costs of
goods manufactured without impairing their suitability for the intended use. Furthermore,
Emmanuel, Otley and Merchant highlight the “five various cost classifications scheme: fixed and
variable cost, direct and indirect costs, outlays and opportunity cost, incremental costs, sunk
costs, non-controllable and controllable costs” (p. 118). Example of fixed and variable cost
include: variable cost varies in line with sales level (cost of sales and sales commissions). In
contrast, fixed cost does not change with sales levels (insurance, rent and depreciation). The
simple approach to determining the split between variable and fixed cost can be analyzed using
the high-low method to determining cost behavior. Example of direct and indirect cost include:
direct costs are traceable to “the thing being costed (the cost object). Ingredients materials would
be a direct cost in the food and beverage department (Nizam and et.al, 2019). (Barbić, Lučić &

Chen, 2019). Indirect costs (overheads): are not traceable to the cost object; general advertising
for the restaurant menu fee would be an indirect cost allocation of the department based on their
relative sales levels. Example of incremental and sunk costs: incremental costs are changed when
different decisions are made whereas sunk costs are already incurred and are now irreversible
(deprecation). Example of controllable and non-controllable cost: in responsibility accounting,
managers should only be held accountable for costs that they can control (labour costs). If high
importance is attached to accounting, segment-controlled costs from non-controllable costs (rent
and insurance) should be made. Example of outlay and opportunity cost: outlay cost is “real”,
which involves a disbursement of funds (expenditures). An opportunity cost is an opportunity
forgone (annual revenue) (Kim, Kim, Pantzalis & Park, 2019). This ultimately makes it easier for
management and qualitative analysis of management decisions. The financial data provided by
the accounting system frequently plays a powerful information role as it carries an air of
‘objectivity.” This tendency should not be allowed to distract from the importance of qualitative
factors in decision making.
Non-Financial Implications
Despite the fact that nine out of ten businesses are planning, implementing, or finishing cost-
cutting activities, only around a third of them consider themselves to be cost-effective. Political
situation, a fragmented strategy, and organizational reluctance to change are seen by most CEOs
as major roadblocks to effective cost saving. Nevertheless, research reveals that many cost-
cutting strategies focus on either removing expenditure items from a cost pool (such as
discontinuing executing reduced tasks) or lowering service utilization and related expenses (such
as removing duplications and redundancies). In most situations, these haphazard, one-
dimensional actions fall short of expectations and fail to deliver the expected results.
Furthermore, the costs involved of cost cutbacks are having an increasingly negative influence
on organizations (Koochel and et.al, 2020). By "hidden costs," we indicate the frequently
unanticipated, unfavourable repercussions of cost-cutting measures. Although hidden costs
normally refer to charges that are not included in the original cost of a type of hardware or
technology (such as maintenance, support, or upgrades), in this case Adfirm Gala Dinner is
concerned about the effects of cost reductions on workplace culture, involvement, and efficiency.

PART 2
Variance Analysis & Recommendations
The two-level sales revenue provides the analysis/difference of actual revenue generated and the
projected revenue. In this case, for the AdFirm Gala dinner, the food and beverage department
budgeted for 486 attendees with an average registration price of $200, which would project
revenue of $97,200. The actual result showed that there were 536 guests with an average price of
$180, which generated revenue of $96,480. This display an overall sale revenue variance
of unfavourable $720.00 from the actual, indicating the event earned lower sales revenue.
Unfavorable lower sales volume could result from low sales due to the initial price rate for the
event. However, in level 2 analyses, the sales volume variance was favourable at $10,000. This
may have been due to the number of attendees increased, which may have led to a decrease in
price to encourage more guests. Additionally, in level 2 analysis, suppose other departments are
accountable for the fluctuation of variance. In that case, to avoid unfavorable variances in the
future, all departments are subject to collaborate in favorable variance (Maisharoh & Riyanto,
2020).
I. Direct Material Cost Variance

The direct material variance is the analysis/difference of the actual cost of production and the
projected cost of production. In this case, for the AdFirm Gala dinner, the food and beverage
department budgeted for 486 meals with an average ingredient cost of $230, which would project
a cost of $33,534. The actual result showed that they were 536 meals served with an actual cost
of $260. This display direct materials price variance for the beverage of $4,288 (which is the
Actual-In betweener) was unfavorable because the actual was more than the budgeted in the in
betweener. However, level 2 analysis suggests that the efficiency variances was
$536favourable, because the in betweener was below the budgeted in the flexible budget, which
could have also boosted the profit by the same amount. Level 3 food analysis suggests that the
direct material price variance for food is unfavorable $3,216. Unfavorable price variance
could’ve results from higher expenditure of ingredient cost from suppliers, higher input price and
last minutes of purchase to provide enough meals for all guest as actual guests numbers were
above the budgeted. Moreover, to avoid future unfavorable variances, `making the head chef
accountable for the quality of food outputs can be achieved. Level 3 also display a result with a
$12,328 favorable efficiency variance. This can result from under-porting the servings, which
may also lead to other key factors such as customer satisfaction.
PART 3
Strategic Analysis
Financial
The food and beverage manager and staff must prefer using meat in a controlled way and not to waste or
increase the expenditure. As seen in task 2, favourable efficiency variance has occurred mainly due to the
under-portioning of meals, directly affecting the guest. This may also have an impact on the direct
material price. Together, both variances, in turn, an unfavourable effect on the gross profit (Mayer,
2021).
Customer
The restaurant management has charged lower registration fees to what was initially budgeted and has
encouraged guests to attend the AdFirm Gala dinner to create brand awareness and loyalty among its
valued customers. This has also engaged guest in a higher number of meals served. Though the number of
attendees increased, this caused the restaurant management to experience an unfavourable price variance
in direct material cost. Hence, it would affect the guest if management decided to use cheaper and low-

quality ingredients leading to poor quality of food as this may result in turn poor guest satisfaction and
low-revisit (Asih & Khafid, 2020).
Organization process
Variances help organization process in control management. As there are variances can be seen
in beverage and food it means actual performance of the company is not meeting the
predetermined one. With the help of budget, food and beverage cost is tracked. These variances
occurs because of occupancy rates, check sizes, cost of supply and cost of labor are different then
expected one. It affects the process of organization. Hotel needs to control the waste of food and
beverages as results are not expected (Seth, Vishwanatha & Prasad, 2019). It affects the
organization as there is spending in production of food and beverage is more than sales. It is not
a good sign for the organization. It is needed to be controlled in order to earn profit. Food
variances showing the positive result but variances in beverage are showing negative it means
there is no proper utilization of beverages.
Employee
It is also affecting the employees. Negative variances are always unfavorable for organization. It
means company needs to control the spending in making its beverages. It may affect the
workforce of the employees within the organization. If company does such changes then it will
affect the performance of the employees. On the other hand, food variances are positive it is a
positive sign for the company (Christoffersen & Stæhr, 2019).
CONCLUSION
As per the above report it has been concluded that financial management is essential part of
any entity that helps to manage the different financial activities in proper manner. There are
identified the issue of cost cutting that impact on the profitability on hotel in direct manner.
Along with analysis various variances that impact on the business activities in different manner.
At the end of the report analysis that these variances are impacted on the strategies objectives
like customer, employee, and organizational process on positive as well as negative manner.

REFERENCES
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