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Revenue & Profit Management

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Added on: 2022-08-20 00:00:00
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Question Task Id: 0

Instructions

You are the manager of a small bed and breakfast owned by Marino Enterprises. Comfy Inn is located in country Victoria and was purchased by the company two years ago when the long term owners decided to sell. The B&B was sentimental to John Marino and Betsy Smith as they used to stay there in their younger days. When it came onto the market they snapped it up.

Some background on the B&B - they are a small luxury homestay property that offers seclusion, privacy and romance for an adult's only stay. There are three cabins onsite; each fully contained. They provide a full breakfast in the main house and a full bar that is open for drinks and canaps from 4pm - 6pm on Friday, Saturday and Sunday afternoons. The bar is open at other times for snacks, coffee, tea, smoothies, soft drinks and alcohol purchases.

Marino Enterprises looks after the property grounds and the manager's wage. Everything else is the responsibility of the manager who resides onsite in the main house. Your partner is employed as the short order cook and you pay a casual cleaner. As part of the onsite manager's role, you and your partner complete the general housekeeping duties when it is quiet.

It is budget preparation time and Betsy has asked you to meet with her to discuss the details.

Betsy has provided you with last year's actual revenue received, broken down into accommodation, food and beverages.


REVENUE BUDGET - ACTUAL for 2015-2016

Comfy Inn B&B

LAST YEAR

Accommodation

Food

Beverages

TOTAL

July

3,000

1,600

1,560

6,160

August

2,800

1,800

1,600

6,200

September

2,800

1,800

1,900

6,500

October

3,600

2,400

1,800

7,800

November

3,800

3,000

1,960

8,760

December

6,000

3,800

1,700

11,500

January

8,800

3,800

1,600

14,200

February

8,800

4,000

1,600

14,400

March

3,800

3,400

1,400

8,600

April

3,600

2,600

1,200

7,400

May

3,400

2,400

1,400

7,200

June

3,200

1,800

1,500

6,500

TOTAL

$53,600

$32,400

$19,220

$105,220

  1. Betsy has also provided you with the following expenditure information that you will need to consider when preparing your cash flow budget. This data has been sourced from historical data, committed costs for the B&B and Marino Enterprises policy:
  • Marino Enterprises' overheads are $2000. All individual businesses and departments pay this overhead in August of each year.
  • Lease payments are $1,500 monthly.
  • Combined insurance coverage to increase to $1,400 per year paid in two equal payments in March and September.
  • General repairs and maintenance to the property of $4,800 pa to be budgeted monthly.
  • Digital marketing and advertising costs will be $2,400 pa, payable monthly.
  • Charges for out-sourced laundering is $800 per month.
  • Electricity charges are payable every quarter as follows:
  • September: $2,200
  • December: $2,000
  • March: $2,400
  • June: $3,000.
  • General monthly miscellaneous expenses amount to $600/month.

You also know from your experience and the management of the property that:

  • You need to replace some linen and towels at the cost of $2000 and replace kitchenware consumables to the value of $1000 at some point in the year. You will need to decide when it is best to include this expenditure in your budget along with an explanation to Betsy as to why you think it is best budgeted for in those months.
  • The monthly cost of F&B stock is predicted to run at 40% of the food and beverage sales. You will need to calculate this cost into your projections.
  • The cost of labour is calculated at 25% of all monthly sales. You will need to calculate this cost into your projections.
    1. Betsy has asked you to enter the income and expenditure data she has given you plus your projections into your accounting system to prepare the draft revenue budget for the upcoming year. You may use Microsoft Excel If you use spreadsheet software make sure you use the headings: income, cost of sales, gross profit, expenses and operating profit. Enter the data with 0 decimal places.

 

  1. Prepare an email (in word) that you can send to the other managers at the B&B, and John Marino seeking their input and feedback. Attach your draft budget and ensure that you provide them with enough information so that they can make a judgement of how and why you have allocated funds as you have.

Students are required to draft an email that can be sent to other managers at Marino for their input. The email must include the draft budget as an attachment and explanation for the costs and how/why they have been allocated the way that they have.

Submit this email in pdf to your assessor as if they were one of the managers. along with a memo explaining:

  1. submit it to your assessor (in the role of Betsy) along with a memo explaining:
  • the extra expenditure for discussion and approval (beds and kitchen appliances)
  • a discussion on the internal and external factors that could have an impact on the budget. Discuss at least three internal and three external factors.

 

QUESTION 3

Betsy has come back to you with some changes to be made to the draft budget. These changes will have come via email or feedback on your hard copy draft.

Betsy also thinks that you have over calculated the cost of stock and the wages at 25% is too high. She has asked you to consider options for reducing the cost of both without effecting customer service levels, the quality of product and of course the income.

SHE HAS ALSO ASKED YOU TO HAVE THE FINAL DRAFT OF THE BUDGET BACK TO HER WITHIN THE WEEK.


  1. Provide at least three recommendations for changes to the budget that will satisfy Betsy's requests in a memo. It is your responsibility to meet the budget so you can choose to make recommendations to increase income, decrease expenditure wherever you see fit or even negotiate not to make any changes to the expenditure.

Make the changes to your budget in the accounting software. Produce a final budget report and submit it to your assessor along with a memo outlining the changes you have (or have not) made with an explanation justifying your decisions. In your justifications include the advantages and disadvantages of accepting your changes. Submit your memo and report to your assessor by the due date.


Question 4

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.

  1. Draft the communication (IN WORD) 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.

EMAIL YOUR ASSESSOR AND ATTACH DOCUMENT AS A FILE

IF CORRECT CHANGE TO PDF AND UPLOAD IN MOODLE TASK D

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.

  1. Draft a communication to Betsy regarding your evaluation of the budget - how you are feeling, how in your effort to reduce expenditure, this has caused a slump in customer service, your recommendations for changes to the budget and the impact that the changes will have - positive and negative. You will need to influence Betsy so ensure you demonstrate that your month-to-date actuals are ahead of budget and how you are saving money. Include your report in your communication to Betsy.

(Students are to submit a memo outlining the recommended changes to the budget (seeking a better deal from the fruit and vegetable supplier, increasing the housekeeper's hours) and how these changes will impact the budget.)

  • EMAIL YOUR ASSESSOR AND ATTACH DOCUMENT AS A FILE
  • IF CORRECT CHANGE TO PDF AND UPLOAD IN MOODLE

 

Question 5

It's the beginning of November and the following income and expenses are for October.

Invoices received:

Patches Fruit and Veg

$522

Dan Murphy's

$160

Laman's Meats

$340

Olsen Laundry

$400


Receipts:

Costco

$178


Credit Card Payments (guests):

C. James

$590

- Accom

300

- Food

230

- Bev

60

F. Dunkertin

$1140

- Accom

600

- Food

420

- Bev

120

M. Tan

$792

- Accom

450

- Food

286

- Bev

56

J. Kelly

$1074

- Accom

300

- Food

410

- Bev

364

L. Keen

$760

- Accom

450

- Food

310

- Bev

0

B. Smith

$214

- Food

214

The last two months have seen some changes. There was a major hail storm in the area which caused damage to one of the cabins. The storm caused a lot of damage and the cabin has been uninhabitable for 5 weeks across September and October. The occupancy rate has dropped to 69%. The insurance company is paying for the majority of the damage but $5,000 will need to be paid out of pocket.

  1. Use the information above to update the budget in the blank cells.

September Budget

September Actuals

October Budget

October Actuals

INCOME

Accommodation

2,940

2,028

3,780

Food

1,890

1,228

2,520

Beverages

1,995

1,296

1,890

TOTAL REVENUE

6,825

4,552

8,190

EXPENSES

Overhead

0

0

0

0

Stock

1,554

1,180

1,764

Lease

1,500

1,500

1,500

1,500

Insurance

700

700

0

0

Repairs/maintenance

400

380

400

Advertising

200

200

200

200

Electricity

2,200

2,200

0

0

Laundry

800

500

800

Wages

1,706

3,300

2,048

2,800

Miscellaneous

600

290

600

700

TOTAL EXPEND.

9,660

10,250

7,312

+/-

-2,835

-5,698

878

Cash on hand: start

9,978

11,534

7,143

Cash on hand: end

7,143

5,836

8,021

  1. Create a report outlining the cash flow and submit it to your assessor with an explanation of how you might recover from the deficit this month. Make at least two recommendations for cash recovery in September/October.

WRITE YOUR REPORT HERE THEN CHANGE TO PDF AND UPLOAD IN MOODLE

Student must submit a cash flow report along with an explanation for how they are going to recover from the cash deficit.


Question 5

It is the end of December and the actual cash amount is down 53% on the original projection. A large contributing factor is that income targets have not been met and the food and beverage budgets have been over spent by 20%. Betsy has asked you to come up with recommendations to solve the income problem, forecast for the remaining six months of the financial year and communicate the new targets and the importance of meeting budgets to the cook.

The good news is that you have heard through the grapevine that there are a number of events happening in the region in the last half of the year. These are weekday tourism events and there are a number of big construction projects where employees drive-in and drive-out for shifts Monday to Friday.

  1. What sources of information might you need to set realistic projections for the rest of the year, including finding out more information about what is coming up in the region? Make a list of at least four people or places you could seek information from.
  2. Identify at least THREE solutions for the income slump. The solutions should concentrate on increasing income and revenue rather than on reducing expenses.
  1. Write a memo to Betsy and the Cook at the B&B outlining the answers to the above questions and including a discussion aimed at the cook about the importance of meeting budget restrictions, what the cook should do if they are having trouble meeting the budget or find it challenging keeping relationships with suppliers. Submit your memo to your assessor in the role of Betsy.

Students must submit a memo that covers:

  • Sources of information for budget preparation.
  • At least three solutions to raise revenue.

Promoting the awareness of meeting budgets with the cook

WRITE MEMO HERE THEN SUBMIT IN TASK F AS A PDF IN MOODLE

MEMO:

  • Uploaded By : Abhi
  • Posted on : May 11th, 2022
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  • Views : 274

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