Reference no: EM132752861

SITXFIN004 Prepare and monitor budgets - Acumen Education

Assessment 2 - Project

Scenario

John Summers and Judy Black run The Restaurant together, and have done since June 2018. It is now early July 2019 and John and Judy have compiled enough information to prepare a budget for the forthcoming year.

John and Judy understand the importance of budgeting, but are not comfortable with their knowledge to be able to put one together. So they have come to you with the following information and attached profit and loss statementfor the previous year ending 2018-19 in Appendix - Afor assistance.

Your trainer will be acting as the stakeholder (John Summers and Judy Black) and you must verbally and formally communicate and liaise with the stake holder through all the processes listed within the assignment below as if you were creating this budget for a real business.

Review the observation checklist to know what is expected of you during consultation.

Business Information

John & Judy anticipate a number of developments which will affect their business in 2019/20 and which should be reflected in the budget. These include the following:

Sales

1. Customer numbers are expected to increase slightly. Judy estimates that their growth will result in a 5.00% increase in sales from July 2019 which will be achieved by 3.5% increase in food sales and beverages by 1.5%.
2. The food and beverage sales are not constant throughout the year and fluctuate depending upon the demand in busy periods of Christmas and Easter. The quarter sales percentage is as under:

Cost of Goods

3. Food costs are expected to increase by 3.25% and beverage purchase costs by 1.75%.

Expenses
4. During the last year John and Judy hired a marketing consultant to prepare a promotional plan for the business for the next five years. The relevant sections of the consultants recommendations for 2019/20 are as follows:

a. The owners should allocate at least 3.5% of the sales turnover for entertainment, discounts and giveaways. This should be split 50/50 between the two relevant cost areas (music/entertainment & Advertising/promotion).

John and Judy have decided to scrap all the current promotional activities and implement the consultant's recommendations.

5. As of 1st October 2019, there will be a general pay rise which will increase the restaurant's weekly wage expense by 2.75%, and it is also estimated that employee benefits will increase by 2.25% at the same time

6.
a. Judy intends to keep the variable cost portion of direct operating costs, Administration, and repairs and maintenance in line with prior years.

b. The fixed portion of the repairs and maintenance account for the last year was broken down by John as follows:

All of the contracts will be subjected to an increase of 4.5% (commencing on 1st July 2019). The fire, health, and safety fees are not expected to change. No major overhauls or repairs are due, however John & Judy think it would be wise to include $2,500 in the budget to be safe.

7. The press has reported that power and phone charges (including phone rental) are to be increased by 6.75% from 1st October 2019.

8. The interest expense relates to a business loan taken out on 1st July 2018. The banks schedule shows that the interest component for the coming year to be $8,425.

9. The rates and insurance ledger account for last year shows the following payments:

The council announced that it has increased the rates for 2019/20 by 7.75%.
The insurance premiums are not expected to change.

Part A

Task 1: Prepare draft budget

Using the previous year's financial information provided to you in the scenario, the information provided to you by John and Judy, and the profit and loss sheet, as well as the Excel spread sheet with formulas,you are required to collect and understand budget information and prepare draft budget.
Refer to Appendices A - D to complete the task. You must submit the following items:
• A draft budget based on the information provided by John & Judy - clearly marked as DRAFT. You
must prepare the draft in the Excel Spreadsheet showing:
o Budgeted sales (food, beverage and total) for each quarter for the year ended 30th June 2020.
o Annual budget for year 2019-20 including breakdown of all four quarters.
You should use the budget templates in Appendix C to prepare your budget. When completing this task, you must:
• Use electronic spreadsheets provided by your Assessor to prepare budget.
• Make sure budget is divided into quarterly periods.
• Ensure you use the previous year's financial data and notes from John and Judy's business information to determine allocations for resources.
• Prepare the budget in compliance with the statutory requirements.
• Ensure the budget you prepare reflects the budget format used by John and Judy.
• Submit the completed budget in a single spreadsheet.

Task 2: Negotiate budget

Arrange a time to meet with your Assessor (who will playthe role of John or Judy) to explain your draft budget and negotiate any required changes. Please review the Role Play Observation Checklist before you meet so you know exactly what is expected of you during the consultation.

Task 3: Finalise budget

Make any required changes and submit your final budget - clearly marked as FINAL.

Important note:
• Where it is not otherwise stated you should assume that revenue and expenses are spread evenly over the year.
• Any cost areas that are not mentioned can be assumed to remain in line with previous years.

Task 4: Disseminate budget to staff

• Prepare a one-page report to be disseminated to all colleagues informing them of the final budget decisions and how they impact their relevant work area. This report should contain:
o your comments on the expected budget performance of the restaurant for the coming year ending 30th June 2020.
o clear identification of which items have the biggest contribution to this performance.
o an outline of management responsibility with regards to managing the budget.

Part B: Catering and special events

John Summers and Judy Black also run catering and special events as a side business. Again, a financial statement is attached for this separate part of the business for 2018/2019. You need to prepare a budget for 2019/20 based on the previous year's figures and the following information below.

Your trainer will be acting as the stakeholder (John Summers orJudy Black) and you must verbally and formally communicate and liaise with the stakeholder through all the processes listed within the assessment below. Review the role-play observation checklist to know what is expected of you during consultation.

Task 1: Prepare budget

a. You need to prepare 4 quarterly DRAFT budgets for each quarter of the year, taking the following information into account:

• It is predicted that catering and special events will have an approximate increase of 4.4% in food sales for the financial year.
• Beverage sales and costs are expected to increase by 2.35% for the financial year.
• Sales are spread evenly through all the quarters in a year.
• From 1st January 2020renton the function centre will rise by 5%.
• Wages are expected to increase by 1.25% as of July 1st 2019
• Based on GDP it is expected food costs will rise by an average of 3% for the financial year.
• There is also a new Alcohol beverage excise that comes into effect as of the 1st June 2019 of 5% of beverage sales.
• Due to the new carbon tax gas and electricity prices will rise by 6.25% for the financial year.
• Party hire equipment are also increasing their prices by an average of 3.25% as of the 1st January 2020

Task 2: Negotiate budget

Arrange a time to meet with your Assessor (who will playthe role of John or Judy) to explain your draft budget and negotiate any required changes. Please review the Role-play observation checklist before you meet so you know exactly what is expected of you during the consultation.

Task 3: Finalise budget

Make any required changes and submit your final budget - clearly marked as FINAL.

Important note:

• Where it is not otherwise stated you should assume that revenue and expenses are spread evenly over the year.
• Any cost areas that are not mentioned can be assumed to remain in line with previous years.

Task 4: Disseminate budget to staff

• Prepare aone-page report to be disseminated toall colleagues informing them of the final budget decisions and how they impact their relevant work area. This report should contain:
o your comments on the expected budget performance of the catering business for the coming year ending 30th June 2020.
o clear identification of which items have the biggest contribution to this performance.
o an outline of management responsibility in regards to managing the budget.

Part C: Monitoring and Reviewing

Task 1: Prepare a budget monitoring plan

For the 2 budgets prepared above:

a. Identify 4 common budget deviations that might occur and develop an action plan on how to monitor and review the budget across the next financial year using the template provided in Appendix D.
b. Identify options to adjust the budget and include details of actions to be taken in order to bring the budget back under control.
c. Submit the completed budget monitoring action plan to your assessor.

• You must refer to the budget monitoring policy extract provided to you in Appendix D.
• You must use the budget monitoring action plan template provided to you in Appendix E.
• You must make sure you include information on timelines and the persons responsible.

Task 2: Monitor and review budget

Scenario
The performance of the sales budget was not as expected during the first quarter and the catering business was able to meet 3/4ths the sales target.

The owners are a little worried about this, as the head chef of the catering division has resigned and moved to join your competitors. The rest of the staff is finding it hard to cope with his absence. This has disturbed the business and has led to decline in sales.

The actual performance of the business for the first quarter of the FY 2019-20was as under:

a. Read the scenario which provides the details of the actual performance at the end of the first quarter carefully and:
• Compare the actual performance in the first quarter of FY2019-20 with the quarterly budget prepared in Assessment task 1, Part B Task 1
• UsetheBudget Variance Analysis Table Template in Appendix F to review budget for Q1 to assess actual performance against estimated performance
• Use the business performance information in the scenario for Q1, to complete the Comments column for line items that vary significantly from budget
• Identify line items that vary significantly from budget (as defined in the Budget Variance Analysis Table template)
• Investigate and select appropriate actions on any two significant deviations according to the measures to bring the budget back under control - as finalised in Part C -Task 1.
b. Prepare a brief performance monitoring report which summarises:
• at least 2 actions to make adjustments to address adverse deviations from budget
• relevant information to in assist in future budget preparation.

Attachment:- Prepare and monitor budgets.rar