SITXFIN003 - Budget Variance Analysis Case Study: Town Hotel

This assignment presents a budget variance analysis conducted for the Town Hotel, examining the deviations between budgeted and actual revenue and costs for July and August. Part A includes a detailed table outlining the budget, actual figures, and variances for sales revenue, food costs, beverage costs, labor costs, and fixed costs, ultimately calculating the total costs and profit variance. Part B delves into the role of budgeting in financial management, emphasizing its importance in forecasting revenue and expenses. It discusses the benefits of monthly versus annual budgets, explores reasons for revenue and expense variances, and identifies areas where the hotel needs to focus on improvement, such as cost management. The analysis reveals that while revenue variance decreased from July to August, profitability variance increased, indicating potential inefficiencies in cost control. The document concludes with a call for better cost management to sustain profitability.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note:

1BUDGET VARIANCE ANALYSIS
Part A
The budget variance analysis for the Town Hotel was done in order to analyze the
variance observed between the forecasted and the actual revenue and costs for the company. The
variance analysis for the company was evaluated for the company and total costs and
profitability for the company on a monthly basis was derived (Kristensen 2015).
Item July August
Budget Actual Variance Budget Actual Variance
Sales Revenue 230,000 225,000 5,000 230,000 228,000 2,000
Food Costs 85,000 87,000 -2,000 85,000 86,000 -1,000
Beverage Costs 14,000 15,000 -1,000 15,000 15,000 0
Labour Costs 77,000 82,000 -5,000 78,000 82,000 -4,000
Fixed Costs 35,000 35,000 0 35,000 35,000 0
Total Costs 211,000 219,000 -8,000 213,000 218,000 -5,000
Profit 19,000 6,000 13,000 17,000 10,000 7,000
The total profitability of the Town Hotel showed a deviation on a monthly basis where the
profitability of the company has fallen and the variance in the budgeted and actual estimate was
evaluated.
Part B
1) Budgeting plays a prospective role in the operations of the company and or the
management of the company. There are various aspects in a business and in the
operations of the company that the budgeting plays for the management of the company.
Budgeting acts as a key tool for the management of the company thereby assessing the
financial goals and objectives of the company (Sponem and Lambert 2016). The
company should forecast the revenue of the company and the relevant expenses for the

2BUDGET VARIANCE ANALYSIS
company thereby managing the finance of the company in a better and efficient way. The
application of budgeting will help the management of the company estimate the amount
of fund needed by the company so that the operations of the company is operated
efficiently by the company. The forecasted expenses of the company on the same side
will help the management of the company for forecasting the key factors of the company
and the relevant actions needed for the operations of the same (Choi 2016).
2) The application of the monthly budget in comparison to the forecasted annual budget for
the company will help them utilize the sources and the application of fund for the
company. The monthly budget gives a detailed analysis to the management of the
company about the operations and the actual data about the company (Khondekar et al.
2015). Every business operations includes forecasting the revenue and the expenses for
the company by assessing various factors and conditions which play a significant role so
that they can take relevant action in regard to the same. The forecasted revenue and
expenses for the company is dependent on various factors and conditions upon which the
company plays a significant role. The difference between the forecasted revenue and the
actual revenue for the company shows the variance and the same has been analyzed for
the company using the difference amount in the same (Jiang and Xie 2018). The same
was applied for getting the variance by taking the actual revenue of the company in
contrast with the forecasted revenue. The variance will help the company analyze the
various aspects of the business factors which affects the overall development of the
company and the important factors and functions which plays a significant role in the
overall development of the organization.

3BUDGET VARIANCE ANALYSIS
3) There are several reasons which influence the revenue of the company and the expenses
of the company and there are several factors in the same which plays a significant role in
the overall result of the same. The variance analysis of the town hotel was evaluated for
the hotel using the forecasted and the actual revenue for the company and the expenses
for the company (Murshed, Amin and Chadni 2018). The variance analysis will also help
us show the standard deviation about the company in forecasted and the actual revenue
for the company and the implications of the same in overall analysis of the company. The
variance in the profitability of the company was observed for the month of July and
August for the company. The variance in the month of July was comparatively much
larger than the variance for the month of August for the hotel. The revenue and the costs
for the in both the case was analyzed and evaluated for determining the variance in the
same. The possible reason for such variance is due to the changing business factors and
various other condition where the hotel operates.
4) There are several areas where the hotel needs to focus on and improvise various factor
relating to the same so that the same does not influence the operations of the company.
The actual revenue for the company was less than the forecasted revenue for the
company. The actual revenue for the company was less than the forecasted revenue of the
company in the month of July and the same was greater in the month of august for the
company. The key factor analyzed was the costs incurred by the company. The company
should take various steps in regard to the cost management of the company as the same
has significantly varied from the forecasted costs of the company. The company should
try its best in reducing the variable costs of the company and the variability of these costs
during the analysis so that the profitability of the company is sustained at sufficient level.

4BUDGET VARIANCE ANALYSIS
The variance for the revenue of the company decreased from the month of July and
August however the variance in the profitability of the company during the same time
increased reflecting the inefficiency of the management in managing the costs associated
with the company.

5BUDGET VARIANCE ANALYSIS
Reference
Choi, T.M., 2016. Multi-period risk minimization purchasing models for fashion products with
interest rate, budget, and profit target considerations. Annals of Operations Research, 237(1-2),
pp.77-98.
Jiang, G.P. and Xie, L., 2018. Associated Control Research for Software Project Schedule and
Budget Based on Function Point Method. DEStech Transactions on Computer Science and
Engineering, (csse).
Khondekar, M.H., Ghosh, D.N., Ghosh, K. and Bhattacharjee, A.K., 2015. Complexity in solar
irradiance from the Earth radiation budget satellite. IEEE Systems Journal, 9(2), pp.487-494.
Kristensen, T.B., 2015. Using adapted budget cost variance techniques to measure the impact of
Lean–based on empirical findings in Lean case studies. In POMS 26th Annual Conference–
Washington DC, USA–8-11. May 2015. Production and Operations Management Society.
Murshed, M., Amin, S. and Chadni, M.H., 2018. Causality Analysis between Inflation, Budget
Deficit and Money Supply: Empirical Evidence from Bangladesh. World Journal of Social
Sciences, 8(3), pp.94-109.
Sponem, S. and Lambert, C., 2016. Exploring differences in budget characteristics, roles and
satisfaction: A configurational approach. Management Accounting Research, 30, pp.47-61.