Finance Module: Budget Analysis and Variance for Twin Rivers Cafe

This report presents a comprehensive analysis of the budget for Twin Rivers Cafe, a small organization serving tourists. It begins by outlining the objectives of budgeting, including predicting cash flows, allocating resources, and monitoring growth. The main body then delves into the variance betwee...Read More

Individual Coursework
(Finance)

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Objective of preparing a budget for Twin Rivers Café...............................................................1
Variance between actual and planned budget..............................................................................2
Explaining variance concerning to management.........................................................................3
Advise to Twin Rivers Café........................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
A budget is a financial plan which helps an organisation to plan their revenues and
expenditure so that any contingencies can be avoided (Chohan and Jacobs, 2018). The aim main
of this report is to develop the understanding about the concepts of budgeting and variance. The
organisation which is considered in this report is Twin Rivers Café which prepares meals for
tourists. In this report, various objectives of preparing a budget is identified for the selected
company along with determining the variance in their developed budget. At last, advice to this
company is also given to facilitate them so that they can support their objectives of attaining
growth and maintaining survival.
MAIN BODY
Objective of preparing a budget for Twin Rivers Café
There are various objectives of creating a budget for Twin Rivers Café which are:
 Twin Rivers Café is a small organisation which seeks to attain growth and development.
For this, it is important for them to develop a budget which will provide them a direction
in which they can lead. Budget will be prepared with an objective to have a good sense of
direction about which month has highest sales and which month needs improvement.
 Another objective of creating a budget for this company is to predict the cash flows. By
using budgets, management of this company can predict their next month’s sales revenue
and accordingly plan for investing that revenue amount in purchasing of machinery by
which they can grow and develop (Roncalli, 2016). By predicting future revenue,
organisation can also predict cash crises months and can save an additional contingent
fund for that month.
 Allocation of resources is also an objective for Twin Rivers Café to prepare budgets. By
using budgets, this company can identify their future needs for resources such as cash,
raw material etc. and then according allocates these resources to activities so that
operating can run smoothly.
 Being a small organisation, it is important for Twin Rivers Café to regularly monitor
their growth so that they can identify the elements which help them in growing. Using
budgets by this organisation objectifies to identify growth rate (Rubin, 2019).
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Performance in regard to gaining sales revenue and profits can also be measured with the
help of budgets.
 Another objective of using budget is to accelerate the efficiency of the functions of this
organisation. By using budgets, Twin Rivers Café can identify the variation between their
set standards and actual outcomes by which they can set relevant strategies so that the
amount of variation can be reduced.
All the points arguments represent the objective for using budget for Twin Rivers Café.
Variance between actual and planned budget
Variance is the difference between actual and planned outcome (Kaye, Frances and III,
2016). Variance in revenue and spending of Twin Rivers Café is determined below:
PLANNING ACTUAL Variance
Budgeted meals quantity 18000 17800 200
Revenues (£4.50q) 81000 80100 900
Expenses: 0
Raw material (£2.40q) 43200 42720 480
Wages and salaries (£5 200+£0.30q) 10600 10540 60
Utilities (£2 400 + £0.05q) 3300 3290 10
Facility rent (£4 300) 4300 5100 -800
Insurance (£2 300) 2300 2600 -300
Fuel 2480 2490 -10
Net Operating Income 14820 13360 1460
From the above variance sheet, it is observed that in the month of July, 2018, Twin Rivers
Café is planning to earn a revenue of £81000 but they only earned £80100. The variation in
revenue is due to the low quantity of meals. Unlike of revenue, spending’s of this organisation
has been increased as facility rent increases by £800 and insurance increases by £300. These non
favourable variations ultimately result into low profit.
The aforementioned variations are a big concern for Twin Rivers Café. This organisation is
in growing stage and they must have high revenues from the budgeted revenues and low
spending from the planned expenditure, but the results in this case are adverse. These variances
must be a concern to the management as:
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 These variances can result in future losses or can slow down the growth and development
of the organisation.
 By these variances, organisation can identify whether the problem which they are facing
is of long term or short term.
 Twin Rivers Café can identify that whether the variation in revenue is of relative size or
in relative size by which appropriate strategies for future contingent situations can be
developed.
 Twin Rivers Café must also concern about these variations as there is a high possibility
that if the variances are small then they require no action but if the varices are huge then
strategies must be re evaluated.
Explaining variance concerning to management
There are various variances identified in this report against the budget of Twin Rivers
Café. Among these variances, few of them need strict concern of the management. Activities
which should concern to management are:
 Meals quantity: Twin Rivers Café recited that they will produce total meals of £18000
but when it came to operations, this organisation was only able to produce total quantity
of £17800. This variation in the activity of meals quantity is a big concern for Twin
Rivers Café. As this means that the productivity of the organisation is not that sound as
they planned to be. Another reason that this activity is the centre of concern is the effect
relationship between revenue and meals quantity. Due to variation in meals quantity,
revenue earned by this company is directly decreased which is clear sign of degrading
productivity and cash accessibility. Twin Rivers Café must control their operations so
that they can produce at least as much quantity what they planned so that revenue and
cash position of the organisation can be stabilise.
 Rent: This activity has shown an adverse variation which reflects that Twin Rivers Café
predicted to pay an expense of £4300 for their facility rent but when it came to
conducting operations, this company has to pay £5100. This high variation £800 can be
the reason due to which this organisation has to bear losses in future years.
 Insurance: Another activity of variance which is a concern for Twin Rivers Café is
insurance. Insurance is the amount which is paid against the expense so that operations
and assets of the organisation can be insured. From the variance analysis conducted in
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this report, it is evident that this café planned to pay expenses as £2300 for their
insurance but it turns that they have to pay a sum of £2600. This variance of £300
resulted into lowering the profitability of this organisation.
 Fuel: This activity has shown a slight adverse variation of £10. Twin Rivers Café is at a
stage where it cannot afford to face any variation. Fuel is marginal expense which can
change according to the situations of the business. This organisation must make sure that
they are using their resourcing in such a way that it does not result in low profitability or
productivity.
Advise to Twin Rivers Café
Twin Rivers Café is a small organisation which sell food meals for the tourist from the
kitchen near local airport. This organisation objectifies to earn high profits so that they can save
some extra cash to operate effectively. The main aim of this organisation involves, acquiring
growth and development, maintaining survival and gaining brand equity.
For each of the aim of Twin Rivers Café, advice is developed and presented as below:
 In order to maintain survival, it is important for this café to maintain cash liquidity in
their organisation and with the current position of low revenues, this cannot be done
(Wildavsky, 2017). So, it is advised to this organisation that they must focus on
producing large number of meals so that they can sold and high revenue can be earned
which will result in high cash availability in the enterprise that will ensure continuous
survival of this cafe.
 In order to gain effective growth and development, it is important for the organisation
earn high profits so that they can compete with their competitors (Wildavsky, 2018). For
this, it is advised that this organisation should regularly monitor their expenses and if
they found any contingent situation then they must develop provisions for that expenses.
 Earning brand equity is also an objective of this organisation and for this, organisation
must make sure that their financial report should show positive results so that audience
can develop an illusion that this is a financially sound organisation. In order to do so, it is
advised to Twin Rivers Café that they must avoid variation situation in their organisation
by developing provisions so that planned and actual budgets can be matched.
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CONCLUSION
From the above report, it has been concluded that it is important for an organisation to
develop budgets as it can provide them an estimate of revenues and expenses. It is further found
in this report that by comparing actual and planned budget, variations can be ascertained which
later helps in measuring the performance of an organisation.
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REFERENCES
Books and Journals
Chohan, U. W. and Jacobs, K., 2018. Public Value as Rhetoric: a budgeting
approach. International Journal of Public Administration. 41(15). pp.1217-1227.
Kaye III, F. J., Frances J. Kaye and III, 2016. Automatic budgeting system. U.S. Patent
9,495,703.
Roncalli, T., 2016. Introduction to risk parity and budgeting. Chapman and Hall/CRC.
Rubin, I. S., 2019. The politics of public budgeting: Getting and spending, borrowing and
balancing. CQ Press.
Wildavsky, A., 2017. Budgeting and governing. Routledge.
Wildavsky, A., 2018. Budgeting as a political process. In The Revolt Against the Masses (pp.
338-349). Routledge.
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