This paper analyzes the budget of Flight Cafe which is a restaurant located near the airport. The objectives of preparing the budget are analyzed and its role in helping the organization achieve its objectives is also evaluated. A critical analysis of the budget is done to evaluate the suitability of the plan. The analysis identifies the strengths and weaknesses of the financial reports prepared in the paper and the usefulness of the report in decision making by the organization. The report also prepares the revenue estimates and the spending variance for the month of July. The various revenue streams for the restaurants together with the revenue that is expected from each revenue stream are estimated (Caanz, 2017). The variance activities that are of great concern to management are determined and recommendations are made to the management.
Objectives of budget
The budget of Flight Cafe is prepared with different objectives. The objectives of preparing Flight Cafe budget should be aligned with the overall objectives and goals of the organization. By identifying budgeting goals, an organization is able to plan its available finances and minimize wastage within the organization (Saudagaran, 2009).The following are the goals and objectives of preparing the budget for Flight Cafe.
One of the objectives of developing a budget is to provide a realistic estimate of income and expenses for a particular period of time. This is important in aiding planning by the company.
The other objective of a budget is to coordinate a plan of action meant to help achieve objectives of the organization. For Flight Cafe to achieve its wide range of objectives, it is important that the company designs a budget that is able to reflect on the overall objectives of the organization (Subhash, 2013).
The budget by Flight Cafe is meant to help the company allocate its resources among its various departments that are important to the company. Flight Cafe has a pool of financial resources and in order for the company to work effectively and efficiently, it is important to come up with a technique of allocating the limited resources among all the segments of the restaurant that make the company successful (Idowu, 2009). Resources are allocated depending on the requirements of every sector to ensure that every sector performs optimally.
The budget also helps the management of Flight Cafe to make crucial management and investment decisions. The management of Flight Cafe needs a budget to make important decisions such as expansion, hiring of additional staff and diversification. The budget will help the management to decide on sources of additional cash that may be required to run the restaurant. With this information, the management team of Flight Cafe is able to source for a suitable lender on time.
The budget prepared by Flight Restaurant will also be used as a basis for comparing actual results achieved with what was planned in the budget. By doing this, the company will be able to measure the level of efficiency and hence corrective action can be taken after the comparison (Carmichael& Graham, 2012). This will hence lead to improvement in overall performance of the organization.
Another objective of the Flight Restaurant budget is to ensure optimum utilization of the financial resources. By allocating resources in a budget,wastage is reduced by a very high percentage and this ensures every penny spent by the business provides desired returns. Through this, unnecessary costs are reduced and profit margins increase significantly.
Report on company revenue variance.
This report critically analyzes the difference between the revenue levels that were projected by Flight Cafe and the actual revenues that the company achieved for the month of July. Revenue is the income of the company from different sources such as from the sale of the meals or disposal of an asset (Deegan, 2013). The projected revenue for Flight restaurant for the month of July is ?81,000. The planned quantity sales for this period amount to 18,000 units and hence the average sales price per meal is estimated to be ?4.5.
The actual results indicate that Flight Restaurant attained a revenue of ?80,100. The actual sales in units are 17,800 units. The average sales price per unit is therefore 80,100/17,800= ?4.5.
The following are the steps followed when calculating the variance of the revenues of Flight Restaurant for the month of July:
Mean is the general central value of a set of data. The most common way of calculating mean is the arithmetic mean. All the numbers in the data set are added up and the divided by the sum of number count. In our case, we have only two values in the data set. The first is the projected revenue and the second is the actual revenue attained by the company.
Mean= 81,000+80,100=161,100/2=80,550
The mean for the revenue is =80,550
The deviation from the mean is calculated by subtracting the mean from the data sets given in the study. We have two data sets and hence the deviation from the mean of these data sets will be:
81,000-80550= 450
80,100-80,550=-450
Each of the deviation from the mean determined above is multiplied by itself as shown below;
450×450=202,500
-450×-450=202,500
The mean of the squares found in step three above is calculated to get the variance of the set.
Therefore:
202,500+202,500=405,000/2=202,500
From the calculations illustrated above, the variance of the values given is found to be 202,500. This is the variance of the revenue of Flight Restaurant for the month of July.
Calculation of variance of the expenses for Flight Restaurant for the month of July; The variance calculates the average of the squared difference from the mean. It helps to determine the spread of data in a data set. The variance is calculated following the same steps as in the steps followed in the process above.
The total projected expenses for the month of July are ?66,180. The actual total expenses for the month of July amount to ?65,610. The variance of these two set of numbers will be calculated in this assessment.
Mean= 65,610+66,180=131,790/2=65,895
The mean for the expenses is found to be 65,895 calculation of deviation from the mean
The mean is subtracted from the each value on the data set to give the deviation from the mean for each value. This is illustrated below:
66,180-65,895= 285
65,610-65,895=-285
The values found in step 2 above are squared to help eliminate the negative results which would have presented problems in determining the variance.
285×285= 81,225
-285×-285= 81,225
81,225 + 81225=131,790/2= 81,225
The variance of expenses for Flight Restaurant is therefore 81,225
It is important to compare the variances that have been calculated in the above solutions. A variance measures the dispersion of data. The variance of revenue for Flight Restaurant is 202,500 while the variance of the expenditure is 81,225. The higher the variance, the higher the dispersion of data in that data set. Variance for revenue of Flight Restaurant is higher than the variance of expenditure and hence this means that it should concern the management more (Godfrey & Chalmers, 2007).
The high variance for revenue of Flight restaurant means that there is a very high difference between the projected revenue and the actual revenue attained by the company. The high variance means that the difference between what was planned and the actual situation is very high. The management of Flight Restaurant therefore needs to act fast and ensure that its actual revenue is close to the projected revenues. These figures indicate that the management of the company needs to implement changes in the company on issues such as marketing as well as sales and advertising (Hoggett, 2012). Customer service for Flight Restaurant may also need to be improved in order to boast the revenues of the company. The management therefore needs to put more emphasis on this variance activity so as to improve the performance of the organization.
From the analysis of the financial information calculated in the report, the major loopholes in the objectives of Flight Restaurant can be determined. The following are the recommendations in what Flight restaurant should do to support the objectives of the company:
The management of Flight restaurant should increase their marketing and advertising activities. This will is intended to help increase the revenues of the company by increasing the customer base. Once the company sets aside a marketing and advertising budget, it will be able to communicate to both its existing and potential new customers and boast the sales of Flight restaurant and hence increasing the revenues of the company (Goel, Goel & Goel, 2008).
To improve the comparison objective of the budget, Flight restaurant needs to improve the revenues collected by the company so that the expenses incurred by the company can be worthwhile. The company has to ensure that the revenues rise to march what is expected since the return on every penny spent by the company has to bring maximum returns.
The objective of minimizing wastage of resources needs to be attained by minimizing the variance of expenses by the company. The difference between the expenses projected is quite significant compared to the actual expenses by the company (Herz, 2016). The actual expenses need to reduce in order to achieve the objective of minimizing wastage of resources.
Flight restaurant can also improve its objective of resource allocation can be improved by identifying important sectors that the company needs to spend on in order to maximize its revenues and profits and so as to ensure proper coordination of functions within the organization (Camfferman & Zeff, 2015).The budget of the company did not match the resource requirement by the company and therefore leading to overspending by the company. Flight restaurant needs to reduce the cost of raw materials in order to help improve the performance of the organization.
In order to improve the objective of decision making support to the management, Flight restaurant should ensure that the budget is as accurate as possible so that decisions informed by the budget can be accurate and timely. If the budget fails to be accurate, it means that the decisions that are made depending on the budget may result to undesirable consequences for the business (Hancock, Bazley& Robinson, 2015). For example the restaurant may make a decision to expand its menu depending on the budget estimates. If the budget is not met, it means that there may occur a cash crisis to and hence leading to failure to implement this decision.
Conclusion
This study evaluates and analyzes the budget of Flight restaurant with a keen interest in the expenses by the company. Flight restaurant is a company that prepares In-Flight meals for its customers and it is located near the airport. The company mainly sells to customers using air transport and the staff working in the airlines that operate in the airport. The report analyzes the objectives of preparing the budget. Some of the objectives of preparing the budget for Flight Restaurant is that it is used as a planning tool upon which actions are taken by the management of the company. The budget is also used to help in allocation of resource equitably among the departments in the company. This ensures efficiency is maximized and also reduces wastage of financial resources. The variance of revenue generated by the company during the month of July is calculated and analyzed. The variance gives the disparity between the revenues projected in the budget and the actual revenue attained by the business. In addition to this, the report analyzes the variance of the expenditure by Flight restaurant. The major chunk of the companies` expenses is spent on raw materials. From the analysis, it can be seen that the variance activity that is of major concern to the company is the revenue variance because of the huge variation between what was planned and the actual revenue raised by the company. The final section of the report contains recommendations made to the company concerning the improvements that can be made on the objectives of the business.
References
Caanz, C. (2017). Financial Reporting Handbook 2017 Australia. [s.l.], Wiley
Carmichael, D. R., & Graham, L. (2012). Accountants’ Handbook, Financial Accounting And General Topics. Hoboken, John Wiley & Sons. https://Www.123library.Org/Book_Details/?Id=58770.
Camfferman, K., & Zeff, S. A. (2015). Aiming For Global Accounting Standards: The International Accounting Standards Board, 2001-2011.
Deegan, C. M. (2013). Financial Accounting Theory. North Ryde, Mcgraw-Hill Education. https://Public.Eblib.Com/Choice/Publicfullrecord.Aspx?P=5047862.
Godfrey, J. M., & Chalmers, K. (2007). Globalisation Of Accounting Standards. Cheltenham, Uk, Edward Elgar. https://Catalog.Hathitrust.Org/Api/Volumes/Oclc/73993812.Html.
Goel, D. K., Goel, R., & Goel, S. (2008). Management Accounting And Financial Management. New Delhi, Avichal Publishing Co.
Hancock, P., Bazley, M. E., & Robinson, P. (2015). Contemporary Accounting: A Strategic Approach For Users.
Herz, R. H. (2016). More Accounting Changes: Financial Reporting Through The Age Of Crisis And Globalization. Http://Public.Eblib.Com/Choice/Publicfullrecord.Aspx?P=4689664.
Hoggett, j. (2012). Accounting. Milton, Qld, John Wiley And Sons Australia, Ltd.
Hopper, T. (2012). Handbook Of Accounting And Development. Cheltenham, Edward Elgar. https://Public.Eblib.Com/Choice/Publicfullrecord.Aspx?P=981461.
Idowu, S. O. (2009). Professionals Perspectives Of Corporate Social Responsibility.
Saudagaran, S. M. (2009). International Accounting: A User Perspective. Chicago, Il, Cch.
Subhash. (2013). Business Accounting And Financial Management. [Place Of Publication Not Identified], Prentice-Hall Of India Pv.
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