Hospitality Industry Managerial Accounting HRT 374

1
Hospitality Industry Managerial AccountingHRT 374

• Chapter 10
• Operations Budgeting

2
Types of Budgets

• Operations budget
• Revenue
• Expense
• Cash budget
• Capital expenditure budget

3
Budgeting Horizons

• Annual
• Divided into monthly
• Divided into weekly
• Divided into daily
• 13/4 week segments
• Five year plan
• Long Range planning is Strategic planning

4
Reasons for Budgeting

• Examine alternatives before deciding
• Standard of comparison
• Look forward
• Involve all levels of management
• Gotta have a plan. Plans can change, but you
  gotta have a plan.

5
Personnel Responsible

• Board of Directors
• CEO
• Controller
• Operating managers

6
Preparation Process

• Financial objectives
• Revenue forecasts
• Expense forecasts

7
Financial objectives

• Profit maximization
• Quality service
• ???

8
Revenue forecasts

• Expected inflation
• Pass costs to customers
• Competition
• Guest spending
• Business travel trends
• Tourist travel trends
• International politics

9
Expense forecasts

• Increases for food and beverage
• Increases for labor
• Changes in fixed charges
• Page 454budget formulation illustrated
• Flexible budgets page 460

10
Budgetary Control

• Determination of variances
• Determination of significant variances
• Analysis of significant variances
• Determination of problems
• Action to correct problems

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Determination of Variances

• Page 465
• Budget Actual
• Significant variancesvaries.

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Turn to page 463

• What are premium wages?
• How is Labor compared to the budget?
• Any concerns with labor?
• Total other expenses?
• What are the problem areas in other expenses?
• Is Department profit good or bad?

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RevenueVariance Analysis (pages 468-469)

• Price variance
• Volume X (Actual price Budgeted price)
• Volume variance
• Budgeted price X (Actual volume Budgeted
  volume)
• Price-Volume variance
• (Actual price Budgeted price) X (Actual volume
  Budgeted volume)

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Variance analysis p. 468

• Room nts Avg price
  Total
• Budget 400 20
  8,000
• Actual 450 18
  8,100
• Difference 50 2
  100
• Price variance budget sales x (act pricebud
  price)
• 400 x (18 20) --800 (U)
• Volume variance bud price x (act vol bud vol)
• 20 x (450 400) 1,000 (F)
• Be aware negative or positive variance!

15
Management Action

• What do you do if
• You had a high labor variance?
• You had a high food cost variance?
• You had a high linen variance?

16
Reforecasting

• What will happen over the next 11, 10, 9, 8, 7,
  6, 5, 4, 3, 2, 1 month(s)?

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Budgeting for Multi-Unit Enterprises

• Use bottom-up approach-starts with unit manager
• Use top-down approach-less take this approach
• Greater need for coordination
• Greater volume of info
• More sophisticated and computerized
• Great amount of time
• Allocation of costs
• Management attention

18
Key terms

• Page 489

19
Homework Ch. 10

• Problems 1,2,5

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Problem 1

• Breakfast
• M-F 5 x 52 x1.2 x 4.50 x 150 210,600
• Sat 52 x 0.8 x 3.70 x 150 23,088
• Lunch
• M-F 5 x 52 x 1 7.20 x 150 280,800
• Sat 52 x 0.5 x 6.70 x150 26,130
• Dinner
• M-F 5 x 52 x 0.5 9.80 x 150 191,100
• Sat 52 x 1.5 x 11.45 x 150 133,965
• Restaurant sales 865,683
• Misc sales 25,970 Total Sales 891,653

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Problem 2 step 1 lunch

• Mon 4 x 150 x 1.2 x 6 4,320
• Tue 4 x 150 x 1.2 x 6 4,320
• Wed 4 x 150 x 1.2 x 6 4,320
• Thur 4 x 150 x 1.2 x 6 4,320
• Fri 5 x 150 x 1.2 x 6 5,400
• Sat 5 x 150 x .8 x 6 3,600
• Sun 5 x 150 x 2.0 x 6 9,000
• Total Lunch sales 35,280

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Step 2 Dinner

• Mon 4 x 150 x .8 x 12 5,760
• Tue 4 x 150 x .8 x 12 5,760
• Wed 4 x 150 x .8 x 12 5,760
• Thur 4 x 150 x .8 x 12 5,760
• Fri 5 x 150 x .8 x 12 7,200
• Sat 5 x 150 x 2.0 x 12 18,000
• Sun 5 x 150 x 1.0 x 12 9,000
• Total Dinner sales 57,240
• L sales 35,280 D sales 57,240 92,520

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Problem 5

• 1. Budget variance actual budgeted
• Meals Price Total
• Budget 3,000 5.50 16,500
• Actual 3,200 5.75 18,400
• Budget variance 1,900
• 2. Volume variance diff in meals (3200 3000)
  x budgeted price
• Volume variance 200 x 5.50 1,100
• 3. Price variance diff in price (5.75-5.50) x
  budgeted volume (meals)
• Price variance 0.25 x 3,000 750