SECTION 1: ALLOCATE BUDGET RESOURCES

1. What is a budget and how does it help a business achieve its goals? (Minimum 30 words each)
 Definition: A budget is a detailed financial plan that shows estimated revenue and expenses
for a given period of time. This information is then used to determine a business’s profitability.
 Purpose: A budget is both a planning and performance evaluation tool. They are prepared
prior to a specific period to assist in the business’s planning processes and allocation of funds
within business. At the end of a period, the budget is then used to assess performance by
comparing actual figures to those originally budgeted. In this way it helps a business achieve its
goals.

2. How do you know how to divide business funds amongst different departments and projects?
(Minimum 15 words)
Since there is a wide variety of areas within the business requiring funds, and as the allocation and
use of these funds should be controlled, a number of different budgets are developed to control
each aspect of the business.

3. What is the difference between a fixed (static) and flexible (variable) budget? (Minimum 60 words)
Fixed Budget: These budgets are usually prepared at the start of a budget period for an area or
outlet, for specific goals, or for areas which do not have a direct relation to production or sales. This
means the figures remain static no matter what the organisation’s actual revenue or expenses are
throughout the budget period. They may be based on past history plus anticipated increases in
business activity, or specific, identified targets.
Flexible Budget: This budget is usually updated at the end of the budget period. This allows the
business to compare and assess performance based on what actually happened. A flexible budget
can be used as an evaluation tool, where the initial fixed budget is adjusted to reflect events which
occurred during the budget period that had a direct effect on its outcomes.

4. What is a cash flow budget and what is it used for? (Minimum 40 words)
A cash flow budget is based on information from the sales and operational budgets and predicts
the cash flow in to and out of the business. This allows you to determine how much cash or funds
are available or must be outlaid during any given period. Using a cash flow budget allows you to
plan for periods of increased cash outflow, assess your ability to finance additional projects such as
renovations or capital purchases, or determine if you need to apply for a bank loan or overdraft to
meet your commitments.

5. What is a profit and loss budget and what is it used for? (Minimum 25)
Profit and loss budgets, also known as revenue or income budgets, are a forecast of what you
hope or anticipate your profit and loss (or income) statement will show at the end of that period. It
indicates your forecasted revenue and expenses for a specific period of time and shows whether
you might make or lose money at the end of the period. This is a very useful accounting tool, as it
shows what volume of sales or revenue you need to achieve to make a certain profit.

6. What do the following terms mean? (Minimum 20 Each)

 Financial viability: Financial viability means that the business has generated enough income
to pay all their liabilities and still it makes a profit.
 Profitability: This is a business’s ability to achieve an adequate return from its assets to cover
all costs associated with operating the business. It shows the profit earned by the business
measured against the amount invested in assets.
 Liquidity: This refers to the availability of cash, or assets that can be quickly converted into
cash, and used to pay for the purchase of goods, services and capital assets.

7. What is a budget cycle? (Minimum 50 words)

 The budget cycle is the process which begins with the initial development of the budget and ends
with the final transaction in the budget period. Since resources are allocated to budgets on an
annual basis, the cycle covers the costs or expenditures for a single year.

8. What must you do when budget priorities are changed? Explain why. (Minimum 25)

9. Your budget allows only a limited amount of funding for wages. Who needs to know about these
types of resource decisions? Explain why. (Minimum 50 words)
Anyone who has an impact on the budget needs to know whenever the budget is changed. This
includes staff who generate revenue or incur expenses as a result of their daily duties.
Discuss any changes to income and expenditure priorities (budget cuts, sales targets, etc.) with
colleagues prior to implementation. This is because, it allows them to identify any areas of concern
or potential problems with the proposed changes. Keeping them informed also helps to gain their
commitment to the achievement of budgetary goals.
10. List two ways you can promote awareness of the importance of budget control.
Ways in which we can promote awareness about the importance of budget control are:
Noticeboards: Place copies of budgets, information on advertising campaigns or details of
promotions on noticeboards for staff to look at after the meeting.
Posters: Put reminders of cost cutting methods (rotating stock, turning off equipment when not in
use, etc.) in strategic positions.

11. How does promoting the importance of budget control help you achieve your goals? (Give 2
examples)
12. Why is it important to record resource allocation? (Minimum 25 words)
It is important to record resource allocation because it helps:
 To track performance
 To analyse efficiency and productivity
 To manage costs and cash flow
 To identify and rectify deviations
 To report on opportunities for future improvements

13. Budgets are not the only source of information relating to where resources are allocated and
controlled within a business. List four other records used to show resource allocation.
Four records used to show resource allocation are:
Profit and loss (or income) statements:One of the budgets used is a P&L budget. This then
becomes a P&L statement at the end of the budgeted period, where the business’s actual
performance is recorded and its profitability can be assessed.
Balance sheets: Information from your P&L statement is used to develop a balance sheet. This
summarises the assets, liabilities and owner’s equity of your business. It essentially shows what
you own, and what you owe.
Bank account records: Bank statements show cash flow through the business in the form of
deposits and withdrawals, and loan agreements and investment records show sources of income.
Purchasing documentation: This includes purchase orders, delivery dockets, invoices, receipts,
departmental requisitions, stocktakes and other stock control documentation. These documents
show where resources, in the form of inventory, have been distributed in the business.
SECTION 2: MONITOR FINANCIAL ACTIVITIES AGAINST BUDGET

1. Why do we record and compare actual performance figures with budgeted figures? (Minimum
20 words)
We record and compare actual performance figures with budgeted figures because:
 To find out if the budgets are being adhered to

 To discover if the resources you’ve allocated are appropriate to the level of business
generated

 To work out if the budgets are realistic

2. How often should you check actual income and expenditure figures against budgets?
(Minimum 10 words)
One should regularly access financial records to check actual income and expenditure figures
against budget.

3. What are business financial commitments? (Minimum 10 words)

An obligation to spend a lot of money over a long time opening your own business requires a
significant financial commitment, it is called business financial commitment.
4. Give two examples of financial commitments for a hospitality business.
5. There are four basic types of expenses you need to record in financial documents to ensure
accurate monitoring. Describe and give one example for each type. ( Minimum 15 words each)
 Fixed costs: Fixed costs include rent or lease payments, salaries, loan repayments and
some aspects of the marketing budget. These don’t vary (no matter how busy or quiet you are,
how many people you serve or tours you sell).
 Variable costs: The most obvious examples are wages and inventory (food, beverages, dry
goods, souvenirs, etc.). These costs fluctuate with the level of activity within the business. If
sales increase, so do the variable costs.
 Direct costs: Direct costs are those directly linked to the provision of products and services.
These include the costs of wages, souvenirs, and equipment purchased as well as food and
beverage items produced and sold.
 Indirect costs: These are costs which can’t be directly attributed to a sales item or
operational outlet. Indirect costs are included in master and profit and loss budgets, with a
percentage of the total allocated to individual budgets. For example, 20% of wages from a
conference centre accounts department may be allocated to the centre’s kitchen and food
outlets
6. What are the formulas used to calculate a budget variance and a budget variance percentage?
Formula to calculate budget variance: Actual sales - budget = variance
Formula to calculate percentage: (Actual sales - budget)/budget x 100 = variance%
7. Check the figures in the table below. Which one has been calculated correctly?

Sales Actual Budget Variance $ %

Bistro $35,000 $45,000 ($10,000) (22.22)
Public bar meals $9,000 $8,000 $1,000 12.25
Club bar meals $8,000 $9,000 $1,000 11.11

(a) Bistro (correct)

(b) Public bar meals
 (c) Club bar meals
8. Indicate if the following budget results are a favourable or unfavourable result.
Actual income is above budget Favourable

Actual income is below budget Unfavourable

Expenses are above budget Unfavourable

Expenses are below budget Favourable

9. What are the four main reasons budget deviations occur? (Minimum 7 words each)
 Too high/too low: One obvious reason for variations is the budgeted targets were set too high
or too low. This may mean the information used to develop the initial forecasts was not
accurately evaluated, appropriate information was not available when setting the targets, or they
were set some time ago using information which is no longer applicable.
 Unforeseen circumstances: You can’t predict every factor which may affect a budget. An
unforeseen circumstance could be as simple as a week of bad weather affecting customer
numbers or fruit and vegetable supplies, an industrial dispute at a company manufacturing one
of your products, equipment breakdown, or influenza sweeping through your staff.
 Changed conditions: Another reason a variation may occur is the information or conditions the
budgets were originally based on have changed. For example, a new, unplanned advertising
campaign run during the budget period could have affected sales figures.
 Operational factors: This is the most common reason why variances occur; the one we have
the most control over and ability to influence. We will look into operational factors shortly.

10. What factors do you need to consider when deciding whether or not a budget deviation should be
investigated further? (List 3 examples)
Factors that need to be considered are:
 Regularity of variance: If a variance occurs only once, it may not be an issue. However,
regular variances can indicate problems with the following.
 Budget targets
 The method or type of information gathered
 The accuracy of the information used
 An outlet or area isn’t performing as expected
 Size of the variance: If a variance is substantially different from previous reporting periods,
then investigation is often warranted. This is especially true if there’s no obvious cause for the
variation.
 Cost of investigation
 Is it worth looking into the variance further?
 Are the costs in time, effort and manpower worth the potential benefits of finding out the cause?
 This partially depends on the size and regularity of the variance.

11. List three options you might consider for more effective management of budget deviations.
(Minimum 10 words each)
ª Update actual figures regularly so that deviation trends can be identified quickly.
ª If a trend in the figures begins to appear, investigate it immediately. Don’t leave it until the end of
the budget period.
ª Investigate options for reducing variable expenses with the purchasing and finance managers and
other appropriate personnel.

12. List four types of information about budget targets you should discuss with staff members.
 Successes
 Concerns
  Improvements
 New goals

SECTION 3: IDENTIFY AND EVALUATE OPTIONS FOR IMPROVED BUDGET PERFORMANCE

1. Who should you discuss desired budget outcomes with? (Minimum 7 words)
One should discuss desired budget outcomes with relevant colleagues.

2. What approaches/possible options can you investigate further to control and improve the
management of food and beverage expenses in a restaurant? (List 5 options)
3 What approaches/possible options can you investigate further to control and improve the
Management of payroll expenses in a hospitality establishment? (List 5 options)
ª Determine anticipated customer numbers and associated workload in advance when
preparing rosters.
ª Where possible, roster a mixture of full-time, part-time and casual staff for greater flexibility.
ª Consider fulltime and casual pay rates when allocating weekday and weekend shifts.
ª Revise staffing levels and individual staff’s start and finish times each day as customer
numbers become clearer.
ª Send casual staff home early if anticipated customer numbers don’t materialise or the area is
quieter earlier than expected

4. List three approaches/possible options you can investigate further to control and improve the
management of accounts payable in a hospitality establishment. (List 3 options)
Bulk purchases: If you take advantage of bulk discounts and buy larger quantities of stock, the unit
price is cheaper, but the invoice total will be higher. If you can afford to pay the higher amount
on the invoice, will you have the funds available when the invoice is due for payment? This
depends on your income and when your accounts receivable are paid.
Just in Time: JIT systems mean smaller orders and smaller invoices. They may still add up to the
same amount, but the payments could be spread over a wider time period. Smaller amounts may not
place as much pressure on cash flow compared to lump sums. You also have to assess if it increases
internal costs, as a JIT system probably means higher workload for the purchasing, stores and finance
teams.
Discounts: Taking advantage of purchase or invoice payment discounts means the business pays
less. This means less money leaving the business, lower expenses and better profits
.

5. List the three main methods businesses use to increase their profits.
6. You want to make recommendations for improved budget management and set new budget
targets. List two people you should present your recommendations to.
 The general manager
 Finance experts
7. The impact of any changes must be considered when developing new approaches or changes to
budget management. List one potential benefit or disadvantage that may occur when implementing
changes in the following areas. (Minimum 30 each)
 Customer service: No business can afford deterioration in their level of customer service.
Poor service as a result of cuts in services or staffing levels can eventually lead to less return
business and reduced income. The business might gain good short-term budget results but the
long- term consequences could be profoundly negative.
 Staff morale: Staff morale is often discounted when trying to improve the performance of a
business. However, as we discussed earlier, unhappy staff either don’t turn up to work or leave.
Unhappy staff don’t sell products and services as well as keen and enthusiastic staff.
Implementing new systems and procedures might reduce expenses, but it could also reduce
sales if staff aren’t supportive of the suggested improvements.
8. How should you present your recommendations for improved budget management? (Minimum 10
words)
ª How and when the changes will be implemented and by whom.
ª Any immediate or up-front costs associated with the changes.
ª How the changes will improve the operation or affect the budget performance.
ª Direct consequences on business operations.
ª Anticipated effect on sales and expenses.

9. List three examples of the type of information you should include when presenting or
communicating about recommendations for budget management. (Minimum 7 words each)

SECTION 4: COMPLETE FINANCIAL AND STATISTICAL REPORTS

1. What information might you need to include when completing financial and statistical reports?
List five examples.
 Statement of purpose: why and what you're reporting
 Methods: how you went about collecting the information included in the report.
 Costing trends: changes in wages, materials, overheads and other relevant expenses
 Market trends: identified shifts in the industry, competitors and markets
 Outcomes: the results and how they affected the business.

2. How do you know when to complete reports? (Minimum 35 words)

A report should be produced in a timely manner according to company policies. It may be
produced periodically or produced only when a problem appears. Budget reports usually
contain specific details about performance in relation to the area or topic that budget controls.

3. List five examples of the type of information you should include in a report to enable the
recipient to make informed decisions.
 Causes of variance: possible reasons for variances; whether they’re one-off situations or
ongoing causes for concern; short-term and long-term effects on the business
 Staff and wages costs
 Performance of department, project, products and services
 Sales performance and sales returns
 Commission earnings and commercial activity accounts
4. Explain how the features of accounting software programs can assist you to manage budgets.
(Minimum 30 words)