Accounting Assignment management help online: Financial Report Analysis of Shangri La’s Hotel
Introduction
Shangri La’s Hotel had decided on the amount that they are going to spend for the April-June quarter. To achieve this, they had decided to go ahead with a budget that will allow them to understand the expense that they can make and the revenue that they can generate. Things didn’t work as they had planned so a proper analysis will be undertaken so that this mistake can be avoided in the future. The variations that have been seen in the report are discussed below.
Static budget analysis
The overall budget that was decided didn’t work as it was planned. The organization had budgeted that their revenue would be at least $1,139,296 but the actual revenue generated was just $1,030,521. No specific department can be blamed for this as almost all the department expect the miscellaneous has earned revenue than what it was estimated. A major fall in the revenue was seen from the revenue that was generated by the room and food department.
Rooms Department
The rooms department’s expense and revenue was planned, each month, for the quarter but yes there were slight variations. To get a better understanding in the variation, the rooms department’s budgeted and actual figures were divided as per the rooms that were occupied, the revenue that was earned, the salaries that were paid to different staff and the expenses that had incurred. The problems started when the rooms weren’t occupied as they were estimated to be. Only in the month of June, the actual rooms occupied were more than what was estimated. Due to the rooms being less occupied than expected, the revenue from the rooms also degraded. The salaries of the staff had increased than what it was expected to be in the April-June quarter. It was also noticed that the salary of front-office staff had increased but that was not the case with the housekeeping staff. In the month of April and May, the salary of housekeeping staff was lower than expected. Even the expenses were more than what it was budgeted. Looking at the expenses, it can be said that the cost of linens was very much higher in the month of April and May than what it was estimated to be.
Food and beverage department
Food and beverage department’s budget and actual sheet for each month clearly the cost and revenue so that there isn’t any problem in understanding the budget later. The revenue that was expected from the food was very high as compared to that of the estimated figure. It can be seen in the budget that for all the three months, the budgeted revenue is more than that of the actual revenue. The case was same for revenue from beverages. Apart from this, one fact shouldn’t be ignored, the cost of sales that was budgeted was also higher than what it was actually. The salary that was estimated for the employees who were working in the food and beverage department was much higher than what accrued and this was the situation for all the three months. It was also noticed that the budgeted amount for April was $87,670 but only $65,791 had incurred. Similarly the expenses that have incurred for linen, music, menu and others in the food and beverage area was much lesser than what it was expected to be. Overall, in the budget, the expenses and income, both were less than expected.
Flexible Budget Analysis
There was a vast difference in the actual cost and the cost incurred as per the static budget that was prepared and hence, a flexible budget was prepared. In flexible budget, the expenses and income fluctuate with that of each other (AccountingTools 2010).
Rooms department’s flexible budget
The flexible budget of room department wasn’t accurate as it was seen that the accrued expenses were more than that of the estimated one. It was noticed, in the month of April, that the revenue from the rooms was having a negative difference of $3,510. The salary of front-office staff exceeded by $7,621 and the salary for housekeeping staff increased by $3,610 thus, making the budget void. All the expenses except the travel agent commission were more than what was stated in the flexible budget. In the month of May, it can be said that the revenue generated was less than what was estimated, the salaries distributed to housekeeping staff and front-office staff was more than that of estimated and the expenses was more than what was estimated. The budget was designed in a better way in the month of June 2012 because the revenue generated was more than estimated, the salary figures were less than estimated and the expenses were also lower than estimated thus, giving a positive hope for the future.
Food and Beverage department’s flexible budget
Looking at profits and losses that have been made by the Food and Beverage department of Shangri La’s Hotel, it can be said that the profit margin was more than what it is expected by way of flexible budgeting. In the month of April and June, the gross profit was more than what it was expected as per the budget. In the month of April, the revenue that was generated by way of food was more than estimated but yes, the cost of sales for these foods and beverages were also more, the salary that was distributed was less than what it was estimated to be but the expenses was more than what was estimated to be thus, the profit margin of the department reduced. The month of May was considered to be bad because the profit estimated was higher than what actually was delivered. The revenue generated by way of restaurant was less than what was estimated and the cost of sales was also lower than expected. The salaries distributed were lower than what was estimated but the overall expenses of the department were more than what was estimated. The expenses were more than what was estimated. Taking a look at June, it can be said that the total revenue was lower than estimated but the total cost of sales was also less than what was estimated, thus, the profit of Shangri La’s Hotel was more than what was budgeted.
Is budget a must because it doesn’t work most of the times?
It is a fact that budgeting cannot be accurate because there are many uncertainties that will arise at the last moment and this uncertainty will cost for sure. There are various other reasons that will explain the importance of budget. Shangri La’s Hotel might have always noticed that their estimated cost is less than that of the actual expense that incurs but this doesn’t mean that the budget estimation is stopped in the future.
Budget at least gives a rough idea regarding the figure of income or expense. If there is no budget then at the end of the year, the management will be shocked to see the expense list. A business cannot be a surprised or shocked at any point of time because it needs to planned in accordance with the prevailing scenario (Chron).
The budget also allows the finance department to set aside a fixed amount. If an organization decides to go ahead for the year without a budget then they won’t be able to keep a track of expense that is taking place in the organization. Different department will spend money as per their need and requirement and due to this, they will start operating as different departments rather than that of an organization as a whole. If a budget is allocated then if a department overspends then they will have to justify their expense to the management so that they can get more funding and this will control their expenses to a a great extent (eSalesTrack).
With the help of a budget, an organization can predict the future and this may not be possible without a budget. The budget shouldn’t be prepared blindly; last year’s expense and income should be taken into consideration so that the organization can plan regarding the funds that they will require to achieve a better profit margin.
Shangri La’s Hotel might have taken into consideration the views and opinions of various employees, at managerial level, regarding the money that their department will require to achieve the set goals. While a manager puts forward his suggestions, the manager will consider only the important things that they require rather than just requesting money anything and everything. It can be said that proper budgeting also reduces the wastage that happens at various levels in the organization.
Shangri La’s Hotel should consider the opinion of housekeeping staff, front-office staff and food & beverage staff’s suggestions because these are the people who directly interact with the customers. A straight budget cannot be set for the quarter so the account manager should review the budget and the changes that are deviating from the budget. The deviation should be identified and they should make changes accordingly in the budget for the remaining year. If Shangri La’s Hotel’s account team thinks that it is a very difficult task to prepare a budget every month then they can purchase an accounting software. Accounting software will reduce the workload as the account manager makes a change in any figure then everything else in the report will be changed automatically (Investopedia 2008).
Conclusion
Budgeting is an art and hence, its success completely depends on the person who creates it. Analyzing the organization in depth will make budgeting accurate and at the same time, the financial burden of the organization will also be reduced.
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