Reference no: EM133173468

SITXFIN004 Prepare and monitor budgets

Assessment task: Scenario

Scenario 1

You've been appointed the project manager for organising and running a charity ball. The ball will be held in the local town hall, a beautiful historic building in the centre of the shopping and business district. The not-for-profit (NFP) organisation running the ball want a black tie, gala event with a three- or four-course meal, music, dancing and entertainment. They plan to hold a charity auction throughout the evening to raise more money for their cause. The ball will be held on the last Saturday in October and they hope to sell 500 tickets.

You are responsible for organising the provision of all food and beverages, a MC, entertainment and music. The charity will source all items for the auction.

The charity organisation has two main goals: to hold a successful event and make a reasonable profit from the ball and the auction. They hope to make this an annual event as money raised can significantly boost their ability to provide aid to others.

As part of the planning process, you must prepare a number of budgets to help achieve these goals. The first stage of your planning process is to calculate expenses to determine the final selling price for the ball tickets. An initial estimated figure of $150 to $200 has been discussed. You must confirm if this is an appropriate price and determine anticipated profits for the organisation. You will report your initial budgets to an event sub-committee of representatives from the NFP organisation.

Task A: Source information question and answer
Q1: What are two of the charity organisation's goals and objectives for this event?
Q2: What budgets do you need to prepare to help you achieve these goals?
Q3: What are four external and internal factors that might affect the event and therefore your budgets?
Q4: What type(s) of data or information will assist you in the preparation of your budgets? Where could you find it?
Q5: The event committee want to be involved in the planning process. What techniques can you use to enable them to contribute to budget planning processes, negotiate changes and inform them of budget decisions?

Task B: Prepare budgets
After conducting extensive research, you've obtained quotes from suppliers for the following items.

Task 3.1: Calculate linen expenses
• Go to Appendix 2, and complete Task 3.1 by calculating linen expenses.
• One of the expenses incurred will be for the hire of linen for the event. Using the information provided, calculate the linen hire costs.

Task 3.2: Prepare an expense budget
• Go to Appendix 3, and complete Task 3.2 by Preparing an expense budget
• Based on the quotes provided by suppliers and your calculations, prepare an expense budget for the event.

Task 3.3: Calculate F&B labour costs
• Go to Appendix 4, and complete Task 3.3- Calculate F&B labour costs
• Based on the information provided, calculate the total food and beverage wage costs incurred from the labour hire company for the event.

All cooks, kitchen assistants and food and beverage service staff will be hired through a hospitality labour hire company for the duration of the event only. The costs quoted by the company include all penalties, workers' compensation, WorkCover and other on-costs. However, there is an additional overtime penalty of $10 per hour for all hours worked after the first eight hours of any given day.

You need staff over a two-day period:
• Friday - room setup and food preparation
• Saturday - setup and delivery of service on the day of the event.

Task 3.4: Calculate total labour costs
• Go to Appendix 5, and complete Task 3.4- Calculate total labour costs
• Based on the information provided, calculate the total food and beverage wage costs incurred from the labour hire company for the event.

In addition to labour hire costs, you employ two supervisors for the event. These are staff you have recruited personally and you pay a flat rate for the two days of $40.00 per hour. You anticipate they will both work 12 hours each day.

Security is also required on the night, with two crowd controller/security staff employed through another staffing agency. You will need 24-hour security from 3 pm Friday due to some of the charity auction items being stored at the venue overnight. Their hourly rate is $40.00 on Friday and $50.00 on Saturday and Sunday. All rates are from midnight to midnight.

Task 3.5: Calculate food costs
• Go to Appendix 6, and complete Task 3.5- Calculate food costs
• Based on the information provided, calculate the total food costs and cost per head for the event.
• Calculate food cost per head against anticipated sales of 500 tickets.

A four-course meal with wine, beer, soft drinks and juices is included in the ticket price.
Meals will be served on a 50/50 basis except for the tapas appetiser, which is a shared platter. An additional 60 main meals are required to cover staff and entertainers' meals. These meals are complimentary, and their cost must be included in ticket sales.
Standard recipes have been costed for each course and an individual cost per serve determined.

Task 3.6: Calculate beverage costs
• Go to Appendix 7, and complete Task 3.6- Calculate beverage costs
• Based on the information provided, calculate the total beverage costs and cost per head for the event.
• Calculate beverage cost per head against anticipated sales of 500 tickets.

Beverages for the gala dinner include a variety of red and white wines to match each course, bottled light and heavy beer, post-mix soft drinks and orange juice.

Task 3.7: Prepare event budgets
• Go to Appendix 8, and complete Task 3.7- Prepare event budgets
• Based on the information provided and the results of the previous tasks, prepare event budgets for the event.

The event committee has asked you to prepare two alternative event budgets based on two different ticket selling prices: $175.00 or $200.00. They want to determine the most feasible and profitable alternative for their organisation.

Task 3.8: Adjust financial commitments
• Go to Appendix 9, and complete Task 3.8- Adjust financial commitments
• Based on the information provided, recalculate linen and beverage expenses.
After meeting with the event committee and discussing potential methods of reducing expenses and maximising profits, the following decisions have been made.
• Linen hire expenses are to be reduced because chair covers and overlays will not be used for the event.
• The committee accepted an offer from a major liquor supplier to supply all wine for the event in return for acknowledgement on printed materials, such as menus, posters and banners.

Task 3.9: Prepare adjusted event budget
• Go to Appendix 10, and complete Task 3.9- Prepare adjusted event budget
• Based on the information provided and the results of the previous tasks, prepare an adjusted event budget for the gala ball that reflects all new calculations and decisions made by the event committee.

The event committee has made the following decisions.
• Ticket prices are set at $175.00 per person unless profits are below $25,000 in the final budget.
• The advertising allowance is to be raised to 3% and printing to 0.5%.
• Entertainment expenses will remain the same at 5%. The band contracted to play during the meal has offered its services for free as a donation to the charity.
• Room decoration expenses will be increased to $3,000.
• Lighting and audio-visual expenses are to be decreased by $1,000 each.
• The supplier who provided costs for the hire of catering equipment for the event is supplying all equipment free of charge for the same acknowledgements as the liquor supplier.

Task C: Question and answer
Base your responses to questions 1 to 4 on the results of Task 3.7: Prepare events budgets.

Q1: How can you present the draft revenue budgets to the event committee and other relevant parties?

Q2: Why should you circulate a draft budget to the members of the events committee?

Q3: Do you think either of the budget options presented meets the charity organisation's stated goals? Why/why not?

Q4: What recommendations would you make to the event committee to help them achieve their goals?

Q5: Once the final budget has been approved, what information do you need to communicate to your
team, the event committee, internal ticket sales staff and external agencies about the final budget?

Q6: After the event, you have to prepare a report to the event committee on the outcomes of the gala ball. What should your report include?

Q7: The NFP organisation are very happy with the outcomes from the gala ball and want to hold it again next year. What information would you collect and record to assist in preparing budgets for next year's event?

Scenario 2
Mario's Delicatessen is situated in a major shopping centre between two well-known supermarket chains and is open seven days a week from 8.30 am to 6 pm. The delicatessen offers an international range of fresh, frozen and pre-packaged products and specialty breads. It sells a range of whole roasted coffee beans and has a small café that makes the best espresso coffees in the shopping centre.

Three brothers are equal partners in the business and share the workload, with all other staff employed as casuals.

The business has been operating at a food cost of 20% and beverage cost of 18% for the past 12 months. However, in this budget, the brothers want to reduce their cost of goods and bring food costs down to 16% and beverage costs to 14%. They plan to source new suppliers for their products, reduce wastage with better stock rotation and careful attention to use-by dates, and possibly discontinue some of their more expensive product lines.

The expense budget includes an increase in utilities costs of around 12%. New procedures are going to be put into place to reduce electrical and gas usage to try to reduce the impact of the price rise.

Casual wage rates are also expected to rise and this has been factored into the budget.

One of the supermarkets will undergo a major renovation from September to November. As the supermarket will still be operating during the renovation period, the brothers believe this should have no effect on sales in the deli, so no adjustments to the sales budget have been made.

Task D: Prepare a revenue budget
• Go to Appendix A and complete Task 3D- Prepare a revenue budget
• Based on the information provided, complete the revenue budget for Mario's delicatessen.

Task E: Prepare an income statement
- Go to Appendix B and complete Task 3E- Prepare an income statement
- Based on the information provided and the results of Task 1, prepare an income statement for Mario's delicatessen.

Q1: What information contained in the income statement are important performance indicators for the business?

Q2: Which variances are favourable and unfavourable results for the business? Give three examples of each.

Q3: What could be the possible causes of the budget variances? Consider what changes to the internal or external environment might have contributed to the deviations.

Q4: What actions (if any) could the brothers take to reduce the possibility of the unfavourable variances occurring again?

Q5: What adjustments might need to be made when preparing future budgets as a result of the outcomes of this budget?