Reference no: EM133173000

SITXFIN004 Prepare and monitor budgets

Assessment task: Knowledge Test

Question 1. Which type of budget uses the previous period's actual or budgeted figures as a basis for the next budget?
(a) Incremental budget.
(b) Zero-based budget.
(c) Rolling or continuous budget.
(d) Cash analysis budget.

Question 2. What are three examples of performance data that can be used when preparing budgets?
(a) Sales figures, average customer spend and timesheets.
(b) Fixed costs, indirect costs and liability costs.
(c) Interest rate percentages, capital financing rates and economic indicators.
(d) Labour rates, wage rates and penalty rates.

Question 3. What is an example of an external factor that will influence a budget?
(a) Staff do not have the required selling skills to meet sales deadlines.
(b) The manager wants to add to the list of services currently offered by the organisation.
(c) Your department is unstaffed and this is affecting customer service levels.
(d) One of your major competitors in the area has closed down.

Question 4. Why should colleagues be consulted and provided the opportunity to contribute to the budget planning process?
(a) So they can't complain later as they were asked to contribute and chose not to.
(b) It helps ensure budget targets are based on accurate information and are achievable.
(c) To make sure the budget targets meet everyone's needs in the business, including staff and management.
(d) To create a budget that is easily understood by everyone using it.

Question 5. What information do you need to analyse prior to drafting a budget?
(a) Previous figures and variances.
(b) Previous experience of the person preparing the budget.
(c) Employee records and rosters.
(d) Supplier agreements.

Question 6. What is the most reliable way to estimate income and expenditure?
(a) Refer to previous financial reports and ensure they're supported with valid, reliable and relevant information.
(b) Speak to other managers and co-workers and calculate an average based on their estimates.
(c) Conduct industry research to calculate standard income and expenditure rates expected in your type of business.
(d) Use your experience and prior knowledge to set realistic income and expenditure goals for your team or department.

Question 7. What must you always keep in mind when drafting a budget?
(a) The total profit you want to make.
(b) Organisational objectives.
(c) How many hours it takes to complete the budget.
(d) The benefits of using a paper-based record keeping system.

Question 8. What format do you use to clearly present information comparing sales budget targets for the next 12 months for each department within the organisation?
(a) Formal written report.
(b) Verbal presentation.
(c) Hands-on workshop.
(d) Graphical presentation.

Question 9. You've prepared a draft budget based on your analysis of all available information. Why do you circulate the draft budget to colleagues and managers prior to a budget meeting?
(a) It creates a feeling of participation and involvement amongst the team so they are more likely to take on ownership of budget outcomes.
(b) It allows time to assimilate and evaluate the information and provide input.
(c) It allows time for sections to be recalculated based on changes to pricing structures, environmental factors or wage rises.
(d) Managers can begin preparing budgets for their work area for presentation at the budget meeting.

Question 10. What should you do before finalising the draft budget?
(a) Use your teamwork skills to negotiate the budget in consultation with colleagues.
(b) Make sure you've not overlooked the opportunity to delegate the responsibility to someone else.
(c) Use your problem-solving skills to make several revisions before finalising any figures.
(d) Make sure the budget results in a net profit.

Question 11. After consulting with colleagues, which modifications are you likely to incorporate before finalising the budget.
(a) Agreed modifications that are likely to foster better working relationships amongst team members regardless of budget results.
(b) Modifications that result in quick and easy profits for the work section or organisation.
(c) Only modifications that everyone within the affected team or every department agrees on.
(d) Agreed modifications that are viable, achievable and likely to enhance the performance of the budget.

Question 12. How and when should a budget be finalised?
(a) As quickly as possible in a format that you're familiar with.
(b) In a clear format within designated timelines.
(c) In teams of two or more people.
(d) Online or in consultation with an accountant.

Question 13. What information needs to be communicated to those responsible for implementing and administering the budgets?
(a) How the budgets will be distributed to others within the organisation.
(b) Any communication between the general manager and head office relating to budget targets.
(c) Previous draft budgets to assist in the understanding of why specific targets have been set.
(d) Reporting and financial responsibilities for their area of control.

Question 14. Why are forecasted budget and actual figures compared regularly throughout, and at the end of, the budget period?
(a) To make sure the budget figures are accurate.
(b) So managers can change the budget figures to make sure they are not under or over budget at the end of the period.
(c) To evaluate performance and determine if operational changes need to be made.
(d) To evaluate the efficiency of the budget planning process.

Question 15. What types of financial commitments are included in budgets?
(a) Financial business goals and mission statements.
(b) Debts, utilities, food and beverage purchases.
(c) Weekly staff rosters and food and beverage purchase orders.
(d) Income gained from investments and distributed to shareholders.

Question 16. The size of the variance and the cost of the investigation are two factors to consider when deciding if a deviation is significant and worth further investigation. What other factor should you consider?
(a) Regularity of the variance.
(b) Variances over $5,000.
(c) Number of customers affected.
(d) The establishment's reputation.

Question 17. Essential equipment has broken down and is likely to result in higher payroll costs and maintenance expenses. What should you do?
(a) Order new equipment and allocate the cost to the next reporting period.
(b) Analyse the likely impact and modify budgets where required.
(c) Calculate expected costs and deduct from the final figure in the cash flow budget.
(d) Make roster changes to ensure payroll costs are kept to a minimum.

Question 18. Why is it important to record information for future budget preparation?
(a) It helps staff understand why budgets are necessary.
(b) Managers can use the information to duplicate the current budget if it is lost.
(c) It can assist in planning more achievable and realistic budget targets.
(d) Companies can understand why they are not meeting expected targets.

Assessment task 2: Worksheets

TASK 2A: Prepare Budget Information

Q1: The role of budgets is to assist and support an organisation's operations. Explain how they do this. Give two examples.

Q2: What are the three different types of ‘year' used when preparing budgets? List their names and appropriate time period.

Q3: What is a fixed (static) budget?

Q4: What is a master budget and what is its purpose?

Q5: What is a revenue statement budget (also known as the ‘profit and loss budget' or ‘income statement budget')?

Q6: List five different sources of data that is used when preparing budgets.

Q7: Describe each of the different categories of expenses. Give one example of each category.

Q8: Briefly describe the role of a sales budget.

Q9: What are two examples of information used to prepare a labour budget?

Q10: What is a master budget?

Q11: How does a cash flow budget aid business planning?

Q12: List three external factors that can affect budget planning.

Q13: Chose one external factor listed in your response to question 12 and briefly explain how it affects budget planning.

Q14: List three internal factors that can affect budget planning.

Q15: Chose one internal factor listed in your response to question 14 and briefly explain how it affects budget planning.

Q16: What level of involvement should colleagues have in the budget planning process?

TASK 2B: PREPARE BUDGET

Q17: You're drafting an incremental budget. What type of information would you look for when analysing previous figures and variances? List three examples.

Q18: You are preparing a draft sales budget. List the five basic steps you would follow.

Q19: A business sells 3,685 dolphin tour passes per year. It's one of their bestselling tours and management expects sales to remain strong. They believe sales will increase 10% next year. How many potential tour passes will be sold next year?

Q20: A business wants to calculate food revenue for the month of July based on 75 seats and an average seat turnover rate of 0.75. The average spend per customer is $13.90. What is the total food sales for the 31-day budget period?

Q21: Last month a business spent $23,379 on food purchases and generated $73,059 revenue. Calculate the food cost percentage.

Q22: To calculate food expenditure you need to determine the cost of a 1 kg bag of flour. The kitchen purchases 20 kg bags for $48.00 each. How much does it cost for 1 kg?

Q23: What are six costs, other than gross wages or salaries, which should be included when calculating a labour budget?

Q24: List three factors that can affect cash flow in a business.

Q25: Why is it important to reflect organisational objectives within the draft budget?

Q26: List two different presentation styles you can use to present options and recommendations to colleagues.

Q27: List two things to keep in mind when deciding which presentation style to use.

Q28: You've prepared a draft budget based on your analysis of all available information. What action is required next?

Q29: Why is circulating a written draft budget an effective method of presenting recommendations to the management team?

TASK 2C: FINALISE BUDGET

Q30: Why is it important to discuss and negotiate outcomes amongst your team prior to finalising the budget?

Q31: Who is usually responsible for incorporating any modifications to the budget?

Q32: How can you ensure the final budget is completed within designated timelines.

Q33: What must you do once the budget is finalised?

Q34: List three examples of the type of information you should provide to colleagues after finalising the budget.

TASK 2D: MONITOR AND REVIEW BUDGET

Q35: What are the five steps followed when monitoring and reviewing budgets.

Q36: List four questions a manager should ask when assessing their budget performance.

Q37: A business forecasted $250,000 sales but actual sales for the period were $235,200. What is the variance and variance percentage?

Q38: What are financial commitments? Where are they recorded?

Q39: Are the following deviations favourable or unfavourable results?

Q40: A business's laundry costs are $1,450 below budget. What is a possible cause for this deviation?

Q41: A hotel's average room rate is 15% above budget. List two possible causes for this deviation.

Q42: List three things you need to assess when deciding if a deviation should be investigated further.

Q43: Part of the budget process is reporting on performance, the results from the various budgets used, and analysing the information you've gained from them. List four examples of the type of financial reports you need to prepare after reviewing budget performance.

Q44: List three internal or external factors that could change over the budget period, resulting in the need to adjust the budget.

Q45: What information should you collect and record for the future?

Q46: Why is it important to collect and record budget performance reports?

Q47: Briefly explain how the features and functions of accounting software programs assist you in managing budgets.

Assessment task 3: 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 3A: 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 3B: 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 3C: 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 3D: 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 3E: 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?

Attachment:- Prepare and monitor budgets.rar