Financial Performance Analysis: Twin Rivers Cafe Budget Report

This report provides a comprehensive financial analysis of the Twin Rivers Cafe's budget, focusing on the objectives of budget preparation, revenue and spending variances, and actionable recommendations. The report begins with an executive summary, followed by an in-depth examination of the budget's objectives, including performance measurement, cash flow prediction, and resource allocation. It then presents a detailed variance analysis for July, comparing planned and actual figures for revenue, raw materials, wages, utilities, rent, insurance, and fuel. The analysis highlights both favorable and unfavorable variances, with explanations. The report identifies areas of concern for management, such as variances in rent, insurance, and fuel costs, and suggests strategies to minimize costs and maximize profitability. Recommendations include monitoring variances, aligning strategies with revenue, and considering factors like seasonal impacts and fixed versus variable expenses. The report concludes by emphasizing the importance of budgeting for financial stability and sustainable development.

Financial
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Table of Content
EXECUTIVE SUMMARY.............................................................................................................3
TASK...............................................................................................................................................3
A. Objective of preparing a budget for Twin Rivers Café..........................................................3
B. Report showing the company’s revenue and spending variance for July along with
explanation...................................................................................................................................4
C. Activity of variance should be of concern to management.....................................................5
D. Advise and Suggestions to Twin Rivers Café........................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
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EXECUTIVE SUMMARY
This report summarises the budget which include the various financial aspect of Twin
Rivers Café and it is prepared to evaluate the overall performance and improve as well. In
addition, it includes the comprehensive statements between planned or actual figures of sales,
expenses and profit of selected organizations. It further includes the various activities and
recommendations for the improvement in the operational activity and financials data.
TASK
A. Objective of preparing a budget for Twin Rivers Café
Budget is the report which is used by the organizations in order to estimate the expenses as well
as revenue for the period. It includes the various costs which required for the projections of sales
as well as revenue for the different time period (Finance and Network, 2013). Budget is an
internal tool which is used by the managers to manage their financials aspect in aspect of Twin
Rivers Café. Budget report does not require disclosing in front of external parties such as
stakeholders. In context of organizations, it is used by the financial experts who have expertise in
this field and able to control spending from the non-valuable activities and prepare different
budget. Basically it is used to compare the estimated value with the projected once. It helps the
managers to formulate various strategies in order to develop plans, set goals & targets, monitor
the progress etc. It is also beneficial in minimising the overall production cost of the company
which maximise the productivity as well as profit margin. Company able to keep track their
financials records and formulate their strategies accordingly which is useful in long-term
planning regarding operating expenses. There are some common objectives which are disused
below:
Measure performance: It is the common objective of every organizations of generating
budget is to measure the performance of individual worker. It is very difficult to measure
because workers are trying to modify budgets to accomplish their individual goals.
Predict cash flows: It is very essential tool for the growing organizations which get
revenue from seasonal products (Gago-Rodríguez and Purdy, 2015). These companies have a
hard time to predict how much revenue they generate in the future and what issues they face
related to the cash.
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Provide structure: With the help of formulating budget, organizations get the suitable
structure which make work easier and provide instructions that how to perform task. So
management develop budget which provide the guidelines that how to perform task and future
activities.
Allocate resources: It is also used to allocate the resources such as Twin Rivers Café
implement in their organizations. This tool used to determine that how much fund required to
each activity which further helps in achieving business goals & objectives.
Tool for decision making: It is one of the best tools for the organizations to formulate
their activities and how much fund they required to perform each task. Main aim of this budget is
to provide structure which followed by the each member of the business. It is further beneficial
for the managers of Twin Rivers Café at the time of decision making process. They also ensure
that decision will be according to the target which they determined in the budget. They used to
formulate financial as well as operational decisions.
Monitoring business performance: It is also one of the main objectives is to measure the
overall performance of the organization in comparison to previous year as well as their
competitors (Lidia, 2015). Management ensure that they meet the organizational expectations
and achieve higher output in terms of revenue.
Forecast of income and expenditure: It is the core purpose of budget to estimate the
revenue as well as expenditure and then they prepare income and loss statements. It further helps
the managers to formulate their strategies in order to achieve organizational goals & objectives.
B. Report showing the company’s revenue and spending variance for July along with explanation
Planning And Actual Budgets For The Month Ended July 31, 2018
Planning Actual Variance
Budgeted meals quantity(Qty.) 18000 17800 43200
Revenue £ 81000 £ 80100 £ 900 A
Expenses:
Raw material (£ 2.40q) £ 43200 £ 42720 £ 480 F
Wages and salaries (£ 5 200+£ 0.30 q) £ 10600 £ 10540 £ 60 F
Utilities (£ 2 400 + £ 0.05 q) £ 3300 £ 3290 £ 10 F
Facility rent (£ 4 300) £ 4300 £ 5100 £ 800 A
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Insurance (£ 2300) £ 2300 £ 2600 £ 300 A
Fuel £ 2480 £ 2490 £ 10 A
Net Operating Income £ 14820 £ 13360 £ 1460 A
From the above table it has been concluded F denotes the favourable variance and the other
hand A denotes the unfavourable variances or adverse (Makings, 2014). Above mention
calculation shows that 17,800 units are actually sold and they expected to get the revenue units
of 18,000. In result, business gets the revenue of £ 900. Schedule Raw Material cost is £ 43200
in comparisons to actual incurred cost of raw material is £ 42720 that is favourable variance.
Salaries as well as wages both expenses are favourable variance of £ 60 and £ 10 respectively.
On the other hand, there are negative variances as well such as rent, insurance and fuel of £ 800,
£ 300 and £ 10 respectively. Net operating profit of the business indicates the unfavourable
difference of £ 1460.
C. Activity of variance should be of concern to management
On the basis of above presented variance calculation, it has been interpreted that Twin
Rivers Café has multiple activities which required to targeted by the managers and formulate
various strategies. They already struggle to target the estimated sales as well as revenue for the
company. It includes the three different types of cost which rise relatively and revenue volume
decline (Senthilkumar and et.al., 2012). These costs are included as rent, fuel and insurance
services which required to measure and try to minimise because it impact the overall profit of the
company. Renting cost is £ 800 which is higher than expected and insurance premiums also more
than expectation. Along with this, fuel costs also higher than the planned level. Management
should prepare strategic plans in order to minimise the variance gap.
D. Advise and Suggestions to Twin Rivers Café
It is very important for the organizations to maintain their variances on monthly basis as
well as periodic meetings where top management should explore these contradictions. In context
of Twin Rivers Café, they are struggling with insufficient revenue in comparisons to the targeted
one. So managers of the company should focus on these areas and build strategies to improve it.
Owner of the Café as well as management need to evaluate their strategies and ensure that it will
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be according to the planned revenue which match the overall capabilities and efficiency of cafe.
Twin Rivers Café should prepare budget as per the latest trend of the tourists, visitors, flights and
customer preferences that engaged in preparation of meals for tourists/citizens. Company is
located in the nearby area of local airport. Revenue should be evaluated after analysing possible
effects on organizations. There are various factors which affect the budget and further impact the
profitability of the business such as seasonal impact, inflation and other environmental impacts
which required considering at the time of formulating budgeted sales.
In the organizations, fixed expenses for example rent and insurance are increases along with
the increase in the sales volume which is important to consider (Vance and et.al, 2016). It is
recommended that, management should be formulating some strong strategies which help in
minimising the overall manufacturing costs or maximise the profit margin. Business need to
divide their expenses into fixed as well as variable cost and consider into budgeting. So mangers
need to identify those factors which increase the overall expenses which required optimising.
Insurance as well as rent costs are fixed that is unable to minimise, so they should focus on
variable expenses. These fixed costs are not affected due to fluctuation in the sakes volume.
Organization should minimise the fuel expenses and authorisation over payments made towards
fuel expenses. Management of Twin Rivers Café need to review their strategy and try to
minimise the expenses for the period.
CONCLUSION
On the basis of above discussion, it has been concluded that budget for financial activities are
very essential which helps in maintaining the overall funds of the company. Managers used to
formulate the strategies and define the performance of the company. It is beneficial for the firm
to allocate resources in order to achieve organizational target. With the help of budget, managers
of the company able to make decisions regarding operational or financial activities which
provide sustainable development.
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REFERENCES
Books & Journals
Finance, E.H. & Network, C., (2013). The eurosystem household finance and consumption
survey-results from the first wave (No. 2). ECB statistics paper.
Gago-Rodríguez, S. & Purdy, D.E., (2015). The effects of budgetary knowledge and extrinsic
motivation on the importance that managers attribute to their budgets. Spanish Journal
of Finance and Accounting/Revista Espanola de Financiacion y Contabilidad, 44(1),
pp. 47-71.
Lidia, T.G., (2015). An analysis of the existence of a link between budgets and performance in
economic entities. Procedia Economics and Finance. 32. pp. 1794-1803.
Makings, U., & et.al., (2014). Importance of budgets for estimating the input of groundwater-
derived nutrients to an eutrophic tidal river and estuary. Estuarine, Coastal and Shelf
Science. 143. pp. 65-76.
Senthilkumar, K., Nesme, T., Mollier, A. & Pellerin, S., (2012). Regional-scale phosphorus
flows and budgets within France: the importance of agricultural production
systems. Nutrient Cycling in Agroecosystems. 92(2). pp. 145-159.
Vance, D., & et.al, (2016). The oceanic budgets of nickel and zinc isotopes: the importance of
sulfidic environments as illustrated by the Black Sea. Philosophical Transactions of the
Royal Society A: Mathematical, Physical and Engineering Sciences. 374(2081). p.
20150294.
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