Question

It is September and the budget is as follows: July Budget July Actuals August Budget August Actuals INCOME Accommodation 3150 5020 2940 3670 Food 1680 1820 1890 2040 Beverages 1638 1680 1680 1896 TOTAL REVENUE 6468 8520 6510 7606 EXPENSES Overhead Stock 1,327 2,100 1,428 2,300 Lease 1,500 1,500 1,500 1,500 Repairs/maintenance 400 600 400 300 Advertising 200 200 200 200 Laundry 800 1,000 800 950 Wages 1,617 1,532 1,628 1,450 Miscellaneous 600 560 600 400 TOTAL EXPEND. 6,444 7,492 6,556 7,100 +/- 24 1,028 -46 506 Cash on hand: start 10,000 10,000 10,024 11,028 Cash on hand: end 10,024 11,028 9,978 11,534 You as the manager and the small order cook have agreed to speak to your fruit and vegetable supplier to see if there are any possibilities of reducing the cost of your purchases. You want to reduce your delivery from 4 days per week to twice a week and rather than telling them what fruit and vegetables you want, you are requesting them to select the best quality for the cheapest price, ie the cheapest on the day. Also as part of cost savings you have had to make the decision to move away from local suppliers of shelf items such as porridge, flour, herbs and spices, sugar, etc. Now that Costco has opened you have the option of buying in bulk. You have calculated that this will save you approximately $3,000 - $4,000 per year.

Enter the above budget income and expenditure amounts for July and August to produce a suitable report.

Draft the communication with the supplier outlining your request and ask them to provide you with the best possible pricing structure. You will also need to influence their decision by reminding them that the B&B wants to stay with local producers and their quality is the best. Your communication should be formatted professionally and written clearly and in a suitable language for the audience. Submit this communication to your assessor.

As the manager you have been trying to cut costs in wages by doing the housekeeping yourself during the week and on Saturdays. While you have made savings you have run yourself into the ground and are exhausted. It has also meant that customer service has suffered because you are running from the office to the cabins during the two to three hour cleaning window while customers wait. Sales have been up with accommodation running at 92% occupancy over the past four months. You want to bring the casual housekeeper back in for 7 days per week. This will add approx. $4000 to your monthly expenditure.

Answer 1

JULY	Items	Budget	Actuals	Variance	%	Notes
INCOME	Accomodation	3150	5020	1870	59.37%
	Food	1680	1820	140	8.33%
	Beverages	1638	1680	42	2.56%
	TOTAL	6468	8520	2052	31.73%	Favourable
EXPENSES
	Overhead Stock	1,327	2,100	773	58.25%
	Lease	1,500	1,500	0	0.00%
	Repairs/maintenance	400	600	200	50.00%
	Advertising	200	200	0	0.00%
	Laundry	800	1,000	200	25.00%
	Wages	1,617	1,532	-85	-5.26%
	Miscellaneous	600	560	-40	-6.67%
	TOTAL EXPENSE	6,444	7,492	1048	16.26%	Negative
NET		24	1,028	1004	4183.33%	Favourable
CASH		1024	1108	84	8.20%
AUGUST	Items	Budget	Actuals	Variance	%	Notes
INCOME	Accomodation	2940	3670	730	24.83%
	Food	1890	2040	150	7.94%
	Beverages	1680	1896	216	12.86%
	TOTAL	6510	7606	1096	16.84%	Favourable
EXPENSES
	Overhead Stock	1,428	2,300	872	61.06%
	Lease	1,500	1,500	0	0.00%
	Repairs/maintenance	400	300	-100	-25.00%
	Advertising	200	200	0	0.00%
	Laundry	800	950	150	18.75%
	Wages	1,628	1,450	-178	-10.93%
	Miscellaneous	600	400	-200	-33.33%
	TOTAL EXPENSE	6,556	7,100	544	8.30%	Negative
NET		-46	506	552	1200.00%	Favourable
CASH		9978	11534	1556	15.59%

Performing budget to actual analysis and generating a report, both the july and august months have performed better than forecasts. The above report shows the variance and its percentage difference when compared to actuals with budget. Starting with July month, the overall income has been favourable with a healthy 31.73% more than the forecast. Whereas, the total expenses can be said to be a negative forecast since the expenses were underestimated by 16.26% which impacts the profits. Out of which the worst estimates were Overhead stock and repairs with a above 50% variance. Overall, the net profits were impressive performance.

For the month of August, the overall income has been favourable with a healthy 16.84% more than the forecast. While the total expenses was estimated with a deviation of 8.3% which is considerable. Overall, the net profits has shown impressive numbers with a positive outlook even when the budget had shown negative values. Further, there is a value addition in both the months with 8.2% and 15.59% cash addition in july and august respectively.

To,

The Produce Supplier

We value your services to us and we are extremely happy about how things are at present. However, our B&B is under going cost cutting and we would still want to procure goods from you. We believe procuring fruits and veggies from local suppliers like you is the best way to serve our customers the freshest and organic produce and it is also helps in building a healthy chain within our community. Therefore to cut costs, we would like to make few changes with respect to delivery frequency from the current 4 times a week to twice a week. The major change we are looking forward is sourcing seasonal, cheapest of the day and fresh produce instead of our specific orders. This will help both parties to make profits and be on neutral grounds. We are seeking an invoice or a structural pricing which would help cut costs significantly. Kindly consider this plan and respond us back at the earliest.

Thank you.

The cost cutting plan on shelf items sourcing from Tesco would help pay for the Housekeeping expenses at approximately similar amount. The resulting cost cutting is approx $3000-4000 on shelf items and any more than $1000 savings on local produce will help spend on housekeeping. This is a valuable shift of cutting cost in one area and investing in other area for better services overall.