SITXFIN402 Manage Finances within a Budget

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Budgets contribute to operational efficiency because they are used to allocate resources to make sure that the necessary resource are available as needed and they are tools for monitoring resource use and management.

Budgets required in such a business would include cost center budgets, sales budgets, cash flow, capital expenditure, master budget.

3. For each of the areas in the hotel, what direct and indirect costs would be applied and why must they be considered when drawing up budgets and developing financial reports?

Direct costs are those that are directly incurred to deliver a product or service. Direct costs, readily identified as belonging to the end product, include most labor, materials or stock, plant and equipment and travel or freight costs, raw materials or the cost of products that will be on-sold. - Direct labor costs are all the costs of employing every person directly involved in producing the product or service within your organization, and include (gross salary, Work Cover insurance, superannuation guarantee charge, long service leave, leave loading).

Indirect costs are those that are paid by an organization but cannot be directly applied to the unit cost of production or sale of an item. - Administrative support staff who are not directly involved in the production processor service delivery are identified as indirect costs.

The following indirect costs can also come under the heading of overheads. (Superannuation, leave, holidays (annual and public), leave loading, sick pay, worker’s compensation.

4. What financial reports might be of benefit to this establishment? Why?

Financial report will be dependent on the type of business and the volume of business, however, sales report, profit and loss report, ratio analysis, break even analysis, revenues, expenditure, and variance reports might all be valuable.

Financial cost analysis. Before you can cost product or services effectively, analysis of the following costs is required: ~ labor (including all salaries and on-cost) ~ Materials/ stock

Equipment/ project ~ Overheads (such as payroll, leases/ rent, vehicles, telephone, etc.)

Ratio analysis is the analysis of performance through ratios or comparisons, and is important in business decision making. Ratio analysis provides a means of examining trends and comparing performance to other firms in the industry. Commonly used ratios include:

Liquidity ratio (cash assets/ cash liabilities) ~ Average debtors (trade debtors/ average daily credit sales) ~ Inventory turnover (cost of goods sold/ average inventory)

Ratio are not just a device used by accountants, but a useful tool that identifies strengths and weaknesses of a business and leads to questions about performance that should result in action.

5. What types of waste might it be necessary to carefully monitor and control and why would this be necessary?

West must be carefully monitored and controlled because all waste is a cost. Reduced costs = increased profit. Waste might relate to material, time, staff hours (labor hours), supply costs, use of consumables, sock management, mistakes and rework. Customer complaints should also be considered mistakes.

6. Who should be responsible for collecting, inputting and recording the data that contributes to budgets and who should be responsible for monitoring budgets – to determine how well performance is meeting expectations? Why?

All staff should be involved, at least to some degree in the budgeting process. If they do not understand what a budget is and how it works, then they cannot be expected to work to ensure that budget expectations are met. They will have no ownership of the processes.

7. What types of budget deviation might occur and what should be done if deviations are identified

Budget deviation will occur when performance does not match expectations. The deviation (variance) can be positive or negative. In either case, the cause must be identified and plans developed to exploit or remedy the variance.

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