Hospitality management accounting phần 7 pdf

if a department does not directly generate any revenue (e.g., the maintenance department of a hotel), a department budget could be prepared showing antici- pated expenses in detail for an operating period. Generally, such department budgets are prepared annually and broken down month by month. MASTER BUDGETS A master budget is the most comprehensive of all budgets. Generally, a mas- ter budget is prepared for a year and includes a balance sheet for a year hence and all the departmental income and expense statements for the next year. BUDGET PREPARATION Who prepares budgets and how often they are prepared varies with the size of the organization and the type of budget being prepared. WHO PREPARES BUDGETS? In a small, owner-operated restaurant or motel, the owner would prepare the budget. If it were a formal or written budget, the help of an accountant might be useful. If the budget were an informal one, there might be no written sup- porting figures. The owner might just have a mental plan about where he or she wants to go and operates from day to day to achieve the objective, or to come as close to it as possible. Budgets are also a record for future budgeting and other planning. In a larger organization, many individuals might be involved in budget prepa- ration. In such organizations, budgets are prepared from the bottom up. At the very least, the department heads or managers must be involved. If their subse- quent performance is evaluated on the plans included in the budget, then they should be involved in preparing their own departmental budgets. They, in turn, might discuss the budget figures with employees in their own departments. Above the department heads would be a budget committee. Department managers might be members of this committee. Such a committee is required to coordinate the budget to ensure that the final budget package is meaningful. For example, the rooms occupancy of a hotel determines, to a great extent, the breakfast revenue for the food department. The budget committee must ensure that the breakfast food sales are not based on an occupancy that differs from the rooms department figure. The formal preparation of the budget is a function of the accounting de- partment. The organization’s comptroller would probably be a member of the budget committee, and his or her task is to prepare final budget information for submission to the general manager for approval. BUDGET PREPARATION 365 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 365 The worst form of budget preparation is to have budgets imposed from the top down through the accounting department to the operating and other depart- ments. Coordination might be present, but the cooperation of the employees where the activity takes place will be minimal. WHEN ARE BUDGETS PREPARED? Each year, top-level management generally prepares long-range budgets for up to five years. They may or may not involve department managers. Each year such budgets are revised for the next period (up to five years) forward. For co- ordination, the budget committee would be involved. Short-term budgets are prepared annually, for the most part, with monthly projections. Each month, budgets for the remaining months of the year should be revised to adjust for any changed circumstances. Department managers should be involved in such revisions and the budget committee should be involved for overall coordination. The department managers or other supervisory staff usually handle weekly or daily short-range budgets internally. For example, the housekeeping supervi- sor would schedule housekeepers (which affects the payroll budget) on a daily basis based on anticipated rooms occupancy. WHAT ARE THE ADVANTAGES OF BUDGETING? A number of advantages accrue to an organization that uses a budget planning process: Since the budgeting process involves department heads and possibly other staff within the department, it encourages their participation and thus im- proves communication and motivation. Therefore, these operating per- sonnel can better identify with the plans or objectives of the organization. In preparing the budget, those involved are required to consider alterna- tive courses of action. For example, should the advertising budget be spent to promote the organization as a whole, or would better results be obtained if emphasis were placed more on a particular department? At the department level, a restaurant manager might consider increasing the number of customers to be served per meal period per server (increased productivity per server) against the possible effects of slower service, re- duced seat turnover, and perhaps lower total sales revenue. Budgets outline, in advance, the sales revenue to be achieved and the costs involved in achieving these revenues. After each budget period the actual results can be compared with the budget. In other words, a standard for comparison is predetermined, and subsequent evaluation of all those involved in the operation is possible. In the case of flexible budgets, the organization as a whole and each de- partment within it are prepared for adjustments to any level of activity between the high and low (minimum and maximum) sales levels. 366 CHAPTER 9 OPERATIONS BUDGETING 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 366 Budgeting forces those involved to be forward-looking. For example, do our menu item selling prices need to be changed to take care of antici- pated future increases in food, labor, and other operating costs? How- ever, this is not to suggest that what happened in the past is not important and not to be considered in budget preparation. Budgeting requires those involved to consider both internal and external factors. Internal factors include such matters as seating capacity, seat turn- over, and menu prices in a restaurant; and rooms available, rooms occu- pancy, and room rates in a hotel. External factors include such matters as the competition, the local economic environment in which the busi- ness operates, and the general inflation rate trend. WHAT ARE THE DISADVANTAGES OF BUDGETING? Obviously, just as there are advantages to budgeting, so, too, are there disadvantages: The time and cost to prepare budgets can be considerable. Usually, the larger the organization the greater is the amount of time, and thus the cost, of preparing budgets. Budgets are based on unknown factors (as well as some known factors) that can have a major impact on what does actually happen. It could be argued that this is not a disadvantage because it forces those involved to look ahead and prepare for the unknown. Budget preparation may require that confidential information be included in the budget. However, if confidential information is included, it may not remain confidential. The “spending to the budget” approach can be a problem. If an expense budget is overestimated, there can be a tendency to find ways to spend the money still in the budget as the end of the budget period arrives. This tendency can be provoked by a desire to demonstrate that the budget fore- cast was correct to begin with and to protect the budget from being cut for the next period. In most cases the advantages far outweigh the disadvantages. THE BUDGET CYCLE The budget cycle is a five-part process that can be summarized as follows: 1. Establish attainable goals or objectives. 2. Plan to achieve these goals or objectives. THE BUDGET CYCLE 367 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 367 3. Compare actual results with those planned, and analyze the differences (variances). 4. Take corrective action required. 5. Improve the effectiveness of budgeting. Each of these five steps will be discussed in turn. ESTABLISHING ATTAINABLE GOALS OR OBJECTIVES In setting goals, the most desirable situation must be tempered with realism. In other words, if any factors limit sales revenue to a certain maximum level, these factors must be considered. An obvious example is that a hotel cannot achieve more than 100 percent room occupancy. In the short run, if a hotel achieves 100 percent occupancy every night, room rates would have to be increased for sales revenue to increase. But since very few hotels achieve 100 percent occupancy year-round, it would be unwise, desirable as it might be, to use 100 percent as the budgeted occupancy on an annual basis. Similarly, a restaurant is limited to a specific number of seats. If it is run- ning at capacity, sales revenue can only be increased, again in the short run, by increasing menu prices or seat turnover (seat occupancy). But, again, there is a limit to increasing meal prices since customer resistance and competition often dictate upper pricing levels. However, if seat turnover is increased by giving customers rushed service, the end result may be declining sales. Other limiting factors might be a lack of skilled labor or skilled supervisory personnel. Increased productivity by serving more customers per server would be desirable and would decrease our payroll cost per customer, but well-trained employees, or employees who could be trained, are often not available. Simi- larly, supervisory personnel who could train others are not always available. A shortage of capital could limit expansion plans. If financing is not avail- able to add guest rooms or expand dining areas, it would be a useless exercise to include expansion in our long-term budget. Management’s policy concerning the market in which the organization will operate might also limit budgets. For example, a coffee shop department head might propose that catering to bus tour groups would help increase sales rev- enue. On the other hand, the general manager may believe that catering to such large transient groups is too disruptive to the regular clientele. Another limiting factor might be in the area of increasing costs. An opera- tion might find that it is restricted in its ability to pass on increasing costs by way of higher prices to its customers. Finally, customer demand and competition must always be kept in mind when budgeting. In the short run, there is usually only so much business to go around. Adding more rooms to a hotel does not automatically increase the de- mand for rooms in the area. It takes time for demand to catch up with supply, and new hotels or an additional block of rooms added to an existing hotel will 368 CHAPTER 9 OPERATIONS BUDGETING 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 368 usually operate at a lower occupancy than normal until demand increases. A new restaurant or additional facilities to an existing restaurant must compete for its share of business. PLANNING TO ACHIEVE GOALS OR OBJECTIVES Once objectives have been determined, plans must be created to achieve them. At the departmental level, a restaurant manager must staff with employees skilled enough to handle the anticipated volume of business. A chef or purchaser must purchase food both in the quantities required to take care of anticipated demand and of a quality that meets the required standards expected by the customers. Purchases must allow the food operation to match as closely as possible its bud- geted food cost. Over the long term, the need to expand the facilities might re- quire top management to make plans for financing and might seek the best terms for repayment to achieve the budgeted additional profit required from the expansion. COMPARING ACTUAL RESULTS WITH THOSE PLANNED AND ANALYZING THE DIFFERENCES This is probably the most important and advantageous step in the budget cycle. Comparing actual results with the budget allows one to ask questions: Our actual dining room revenue for the month of April was $60,000 in- stead of the budgeted $63,000. Was the $3,000 difference caused by a reduction in number of customers? If so, is there an explanation (e.g., are higher prices keeping customers away, or did a competitive restau- rant open nearby)? Is the $3,000 difference a result of reduced seat turn- over (is service slowing down)? Are customers spending less (a reduced average check, or customer spending, because of belt tightening by the customer)? Yesterday the housekeeping supervisor brought in two more housekeep- ers than were required to handle the actual number of rooms occupied. Is there a communication problem between the front office and the house- keeping supervisor? Did the front office fail to notify the housekeeping supervisor of reservation cancellations, or did the housekeeping super- visor err in calculating the number of housekeepers actually required? The annual cocktail lounge departmental income was greater than the previous year, but still fell short of budgeted income. Did the sales rev- enue increase reach the budgeted level? Or did costs increase over the year more than in proportion to revenue? If so, which costs? Was there a change in what we sold (change in the sales mix)? In other words, are we now selling less profitable items (such as more beer and wine than liquor) in proportion to total sales revenue? THE BUDGET CYCLE 369 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 369 These are just a few examples of the types of questions that can be asked, and for which answers should be sought, in analyzing differences between bud- geted performance and actual performance. Analysis of such differences will be commented upon further in the section on variance analysis later in this chap- ter. It should be noted that the variances themselves do not offer solutions to possible problems. They only point out that problems may exist. IF REQUIRED, TAKING CORRECTIVE ACTION Step 3 in the budget process points to differences and possible causes of the dif- ferences. The next step in the budget cycle necessitates deciding if corrective action is required and then acting on the decision. The cause of a difference could be the result of a circumstance that no one could foresee or predict (e.g., weather, a sudden change in economic conditions, or a fire in part of the prem- ises). On the other hand, a difference could be caused because selling prices were not increased sufficiently to compensate for an inflationary cost increase; or that the budgeted forecast in occupancy of guest rooms was not sufficiently reduced to compensate for the construction of a new, nearby hotel; or that staff were not as productive in the number of customers served or rooms cleaned as they should have been according to predetermined standards. Whatever the rea- son, it should be corrected if it can be so that future budgets can more realisti- cally predict planned operations. Variances between budget and actual figures should not be an argument in favor of not budgeting. Without a budget, it would not even be apparent that the operation is not running as effectively as it should and could be. If the variance was favorable (e.g., guest room occupancy was higher than budgeted), the cause should also be determined because that information could help in making fu- ture budgets more accurate. Once you have taken corrective action, you should determine the effective- ness of that action in solving the problem. If the corrective action did not solve the problem, the situation needs to be reassessed and a different technique tried to solve the problem. IMPROVING THE EFFECTIVENESS OF BUDGETING This is the final step in the five-step budget cycle. All those involved in bud- geting should be made aware of the constant need to improve the budgeting pro- cess. The information provided from past budgeting cycles and particularly the information provided from analyzing variances between actual and budgeted fig- ures will be helpful. By improving accuracy in budgeting, the effectiveness of the entire organization is increased. 370 CHAPTER 9 OPERATIONS BUDGETING 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 370 DEPARTMENTAL BUDGETS The starting point in any complete budgeting process is the departmental income statement. The rest of the budgeting process hinges on the results of these operating departments. For example, a budgeted balance sheet cannot be made up without the budgeted income statements; a cash budget cannot be pre- pared without knowledge of departmental revenue and expenses; long-term bud- gets for equipment and furniture replacement, for dividend payments, or for future financing arrangements cannot be prepared without a budget showing what income (or funds) is (are) going to be generated from the operation. The budgeted income statements for each department and the entire opera- tion are probably the most difficult to prepare. However, once this has been done, the preparation of the cash budget and budgeted balance sheet is relatively straightforward. This chapter will therefore only deal with income statement budgets, since they are the prime concern of day-to-day management of a ho- tel or restaurant. In summary, the procedure is as follows: 1. Estimate sales revenue levels by department. 2. Deduct estimated direct operating expenses for each department. 3. Combine estimated departmental operating incomes and deduct estimated undistributed expenses to arrive at net income. ESTIMATING SALES REVENUE LEVELS BY DEPARTMENT Even though departmental income statements are prepared for a year at a time, they should be initially prepared month by month (with revisions, if necessary, during the budget year in question). Monthly income statements are necessary so that comparisons with actual results can be made each month. If the com- parison between budget and actual were only made on a yearly basis, any re- quired corrective action might be 11 months too late. The following should be considered when making monthly revenue projections: Past actual sales revenue figures and trends Current anticipated trends Economic factors Competitive factors Limiting factors Information about how top management views these trends and factors must be communicated to those who prepare departmental budgets. This information must also be put into language that the department managers understand, that DEPARTMENTAL BUDGETS 371 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 371 is, in specific numeric terms rather than in vague, general language. For exam- ple, if an anticipated competitor is due to open nearby during the budget period, top management must state in specific percentage terms how that may influence the operation’s sales. For example, the dining room revenue for the past three years for the month of January was Year 1 $60,000 Year 2 $65,000 Year 3 $67,000 It is now December in year 3, and we are finalizing our budget for year 4, commencing with January. The increase in volume for year 2 over year 1 was about 8 percent ($5,000 divided by $60,000). Year 3 increase over year 2 was approximately 3 percent. These increases were caused entirely by increases in number of customers. The size of the restaurant has not changed and no change in size will occur in year 4. Because a new restaurant is opening a block away, we do not anticipate our customer count will increase in January, but neither do we expect to lose any of our current customers. Because of economic trends, we are going to be forced to meet rising costs by increasing our menu prices by 10 percent commencing in January year 4. Our budgeted sales revenue for Jan- uary year 4 would be: $67,000 ؉ (10% ؋ $67,000) ؍ $ ᎏ ᎏ 7 ᎏ ᎏ 3 ᎏ ᎏ , ᎏ ᎏ 7 ᎏ ᎏ 0 ᎏ ᎏ 0 ᎏ ᎏ The same type of reasoning would be applied for each of the 11 other months of year 4, and for each of the other operating departments. One other factor that in some situations might need to be considered in sales revenue projections is that of derived demand. In other words, what happens in one department might affect what happens to the sales revenue of another. For example, a cocktail bar might generate sales revenue from customers in the bar area as well as from customers in the dining room. In budgeting the bar total sales revenue, the sales revenue would have to be broken down into sales revenue within the lounge area and sales revenue derived from dining room customers. Similarly, in a hotel the occupancy of the guest rooms will affect the sales revenue in the food and bev- erage areas. The interdependence of departments must, therefore, be kept in mind in the budgeting process. DEDUCTING ESTIMATED DIRECT OPERATING EXPENSES FOR EACH DEPARTMENT Since most departmental direct operating costs are specifically related to sales revenue levels, once the sales revenue has been calculated, the major part of the budget has been accomplished. Historic accounting records will generally show 372 CHAPTER 9 OPERATIONS BUDGETING 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 372 that each direct expense varies within narrow limits as a percentage of sales rev- enue. The appropriate percentage of expense to sales revenue can therefore be applied to the budgeted sales revenue to calculate the dollar amount of the ex- pense. For example, if laundry expense for the rooms department of a hotel varies between 4.5 percent and 5.5 percent of sales revenue, and sales revenue in the rooms department for a particular month is expected to be $100,000, then the laundry expense for that same month would be 5 percent ϫ $100,000, or $5,000. The same is true for all other direct expenses for which cost to revenue percentages are obvious. While this is a convenient method of budgeting, using historical cost percentages assumes that the costs were appropriate. However, this may not be true. In certain cases, however, the problem might not be as simple. A good ex- ample of this is labor, where much of the cost is fixed and does not vary as sales revenue goes up or down. In a restaurant the wages of the restaurant manager, the cashier, and the host or hostess are generally fixed. Such people receive a fixed salary regardless of the volume of business. Only the wages of servers and bus help vary in the short run. In such cases, a month-by-month staffing sched- ule must be prepared, listing the number of variable staff of each category re- quired for the budgeted sales revenue level, calculating the total variable cost, and adding this to the fixed cost element to arrive at total labor cost for that month. It is true that this requires some detailed calculations, but without it the budget might not be as accurate as it could be for effective budgetary control. Staffing schedules for each department for various levels of sales could be developed. These schedules would be based on past experience and the stan- dards of performance required by the establishment. Then when sales levels are forecast, the appropriate number of labor-hours or staff required for each type of job can be read directly from the staffing schedule. The number of hours of staffing required or the number of employees can then be multiplied by the ap- propriate rates of pay for each job category. A typical staffing schedule is il- lustrated in Exhibit 9.1. DEPARTMENTAL BUDGETS 373 Monthly Volume in Covers Waitstaff Hours Bus Help Hours Up to 5,500 970 485 5,550 to 6,500 1,040 485 6,500 to 7,500 1,210 485 ⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄ ⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄⁄ 21,500 to 22,500 3,890 990 Over 22,500 4,160 1,040 EXHIBIT 9.1 Staffing Schedule—Coffee Shop 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 373 Alternatively, if labor (and other costs) have been broken down for use with CVP analysis (see Chapter 8) into their fixed and variable elements, then this information is already available for use in budgeting. Once all costs have been determined, they can be deducted from total sales revenue to determine each department’s operating income. COMBINING ESTIMATED DEPARTMENTAL OPERATING INCOMES AND DEDUCTING ESTIMATED UNDISTRIBUTED EXPENSES TO ARRIVE AT NET INCOME The departmental operating incomes determined in steps one and two can now be added together. At this point, certain undistributed expenses must be calcu- lated and deducted. These expenses are not distributed to the departments be- cause an appropriate allocation is difficult to arrive at. Nor are they, for the most part, controllable by or the responsibility of the department managers. These unallocated expenses (including fixed charges) usually include the following: Administrative and general Marketing Property operation and maintenance Utilities expense Property or municipal taxes Rent Insurance Interest Depreciation Income taxes Since these expenses are usually primarily fixed, they vary little with sales revenue; historic records will generally indicate the narrow dollar range within which they vary. Sometimes these expenses will vary at the discretion of the general man- ager. For example, it may be decided that an extra allocation will be added to the advertising and promotion budget during the coming year or that a particu- lar item of expensive maintenance can be deferred for a year. In such cases, the adjustment to the budget figures can be made at the general manager’s level. Usually, these undistributed expenses are calculated initially on an annual basis (unlike departmental sales revenue and direct operating expenses, which are ini- tially calculated monthly). If an overall pro forma (projected or budgeted) in- come statement, including undistributed expenses, is prepared monthly, then the simplest method is to divide each undistributed expense by 12 and show 374 CHAPTER 9 OPERATIONS BUDGETING 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 374 [...]... 12(616,852,495) ؊ (76 ,343)(96,863) ᎏᎏᎏᎏ 12(486,221 ,71 9) ؊ (76 ,343) (76 ,343) 7, 402,229,940 ؊ 7, 394,812,009 ‫ ؍‬ᎏᎏᎏᎏ 5,834,660,628 ؊ 5,828,253,649 7, 4 17, 931 ‫ ؍‬ᎏᎏ ‫61.1 ؍‬ ᎏᎏᎏᎏ 6,406, 979 To calculate a, we must first calculate the average of Y and the average of X: 96,863 Average of Y ‫ ؍‬ᎏ ‫ 270 ,8 ؍‬ 12 ᎏᎏᎏᎏᎏ 76 ,343 Average of X ‫ ؍‬ᎏ ‫263,6 ؍‬ 12 ᎏᎏᎏᎏᎏ a ‫)263,6 ؋ 61.1( ؊ 270 ,8 ؍‬ a ‫296 ؍ 083 ,7 ؊ 270 ,8 ؍‬ ᎏᎏᎏ... (1.16 ؋ 6,200) 692 ؉ 7, 192 ‫488 ,7 ؍‬ ᎏᎏᎏᎏᎏ FORECASTING Month 1 2 3 4 5 6 7 8 9 10 11 12 Total Guest Nights X Meals Served Y XY (X ؋ Y ) X2 (X ؋ X ) 6,102 6,309 6,384 6,501 6,498 6,382 6,450 6,522 6,608 6,502 6, 274 5,811 ᎏᎏᎏᎏᎏᎏ 76 ,343 ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ 7, 822 7, 544 8,021 8,299 8,344 8,245 8,311 8, 274 8,328 8,188 7, 985 7, 502 ᎏᎏᎏᎏᎏᎏ 96,863 ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ 47, 729,844 47, 595,096 51,206,064 53,951 ,79 9 54,219,312 52,619,590... 47, 595,096 51,206,064 53,951 ,79 9 54,219,312 52,619,590 53,605,950 53,963,028 55,031,424 53,238, 376 50,0 97, 890 43,594,122 ᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏ 616,852,495 ᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏ 37, 234,404 39,803,481 40 ,75 5,456 42,263,001 42,224,004 40 ,72 9,924 41,602,500 42,536,484 43,665,664 42, 276 ,004 39,363, 076 33 ,76 7 ,72 1 ᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏ 486,221 ,71 9 ᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏᎏ EXHIBIT 9.6 Calculation of Regression Analysis Data Finally,... in the hourly rate paid, or did unanticipated 3 87 388 CHAPTER 9 OPERATIONS BUDGETING Actual quantity 4,100 ϫ Actual cost $7. 70 Actual $31, 570 ϭ $31, 570 Standard Actual cost quantity 4,100 ϫ $7. 50 ϭ $30 ,75 0 Standard cost Budgeted quantity 4,350 ϫ $7. 50 Budget variance ϭ $32,625 $820 ᎏᎏᎏᎏ ᎏᎏᎏᎏ Unfavorable Cost variance $1,055 ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ Favorable ($1, 875 ) ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ Favorable Sales volume variance... $ 47, 250 $2 ,75 0 (unfavorable) Date: September 3 Number of Hours Today Department Rooms Front office Housekeeping Service Switchboard Food Dining room Coffee shop Banquet Labor Cost Today Labor Cost to Date Budget Actual Budget Actual Budget Actual 10 42 8 6 10 43 8 6 $ 440 1,280 320 274 $ 440 1,310 320 274 $1,320 3,840 960 822 $1,320 3,900 930 822 13 7 11 14 6 11 $ 456 245 440 $ 4 87 2 17 440 $1,368 73 5... 6,498 6,382 6,450 6,522 6,608 6,502 6, 274 5,811 7, 822 7, 544 8,021 8,299 8,344 8,245 8,311 8, 274 8,328 8,188 7, 985 7, 502 Even though we intuitively know that there is a strong relationship between room occupancy and restaurant meals served, we also know that some people who are not hotel guests eat in the restaurant The regression analysis formula used in Chapter 7 effectively handles the determination...DEPARTMENTAL BUDGETS 375 Quarter 1 Sales revenue Direct costs* Operating income Undistributed expenses Net income (loss) Quarter 2 Quarter 3 Quarter 4 Totals $300,000 ( 250,000) ᎏᎏᎏᎏᎏᎏᎏᎏ $ 50,000 ( 75 ,000) ᎏᎏᎏᎏᎏᎏᎏᎏ ($ 25,000) ᎏᎏᎏᎏᎏᎏᎏᎏ $600,000 ( 450,000) ᎏᎏᎏᎏᎏᎏᎏᎏ $150,000 ( 75 ,000) ᎏᎏᎏᎏᎏᎏᎏᎏ $ 75 ,000 ᎏᎏᎏᎏᎏᎏᎏᎏ $800,000 ( 550,000) ᎏᎏᎏᎏᎏᎏᎏᎏ $250,000 ( 75 ,000) ᎏᎏᎏᎏᎏᎏᎏᎏ $ 175 ,000 ᎏᎏᎏᎏᎏᎏᎏᎏ $300,000 (... cost outflows Let us look at another example: Coffee Shop Variable Wages, for May Budget 4,350 hr ϫ $7. 50 per hr ϭ $32,625 Actual 4,100 hr ϫ $7. 70 per hr ϭ 31, 570 ᎏᎏᎏᎏᎏᎏᎏ Buget variance $ 1,055 (favorable) ᎏᎏᎏᎏᎏᎏᎏ Note that the net variance is $1,055 favorable Variance analysis shows that there was a $1, 875 saving on labor due to a reduced number of hours paid, perhaps as a result of less business than... Actual Budget Actual Budget Actual 10 42 8 6 10 43 8 6 $ 440 1,280 320 274 $ 440 1,310 320 274 $1,320 3,840 960 822 $1,320 3,900 930 822 13 7 11 14 6 11 $ 456 245 440 $ 4 87 2 17 440 $1,368 73 5 1, 674 $1,399 70 7 1, 674 EXHIBIT 9.5 Sample Payroll Costs Summary and Analysis Labor Cost Variance Today To Date $ϩ30 $ϩ60 Ϫ30 $ϩ31 Ϫ28 $ϩ31 Ϫ28 384 CHAPTER 9 OPERATIONS BUDGETING In determining the amount of the variance,... reduces revenue and, therefore, net income Actual volume 4,500 Actual volume 4,500 ϫ Budgeted price ϫ $10.00 Actual $ 47, 250 Totals ϭ $ 47, 250 Budgeted price ϫ $10.00 ϭ $45,000 Budgeted volume 5,000 Actual price $10.50 Budget variance $2,250 ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ Price Favorable variance $2 ,75 0 ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ Unfavorable ($5,000) ᎏᎏᎏᎏᎏᎏ ᎏᎏᎏᎏᎏᎏ Sales Unfavorable volume variance ϭ $50,000 Budget $50,000 We now . 930 Ϫ30 Switchboard 6 6 274 274 822 822 Food Dining room 13 14 $ 456 $ 4 87 $1,368 $1,399 $ϩ31 $ϩ31 Coffee shop 7 6 245 2 17 735 70 7 Ϫ28 Ϫ28 Banquet 11 11 440 440 1, 674 1, 674 EXHIBIT 9.5 Sample Payroll. $250,000 $ 50,000 $ 500,000 Undistributed expenses ( ᎏᎏ 7 ᎏ 5 ᎏ , ᎏ 0 ᎏ 0 ᎏ 0 ᎏ )( ᎏᎏ 7 ᎏ 5 ᎏ , ᎏ 0 ᎏ 0 ᎏ 0 ᎏ )( ᎏᎏ 7 ᎏ 5 ᎏ , ᎏ 0 ᎏ 0 ᎏ 0 ᎏ )( ᎏᎏ 7 ᎏ 5 ᎏ , ᎏ 0 ᎏ 0 ᎏ 0 ᎏ )( ᎏ ᎏ ᎏ 3 ᎏ 0 ᎏ 0 ᎏ , ᎏ 0 ᎏ 0 ᎏ 0 ᎏ ) Net. seats available Average annual sales revenue per seat BUDGETING IN A NEW OPERATION 377 4259_Jagels_09.qxd 5/1/03 11:11 AM Page 377 A more comprehensive approach would be to analyze last year’s figure in the