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HFT 3431

HFT 3431. Chapter 10 Operations Budgeting. Budget Questions. What Are the Forecasted Revenues for the Month? What Is the Budgeted Labor for the Year? How Many Rooms Are Expected to Be Sold?. Budget Questions. What Is the Expected ADR? What Is the Departmental Income?

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HFT 3431

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  1. HFT 3431 Chapter 10 Operations Budgeting

  2. Budget Questions • What Are the Forecasted Revenues for the Month? • What Is the Budgeted Labor for the Year? • How Many Rooms Are Expected to Be Sold?

  3. Budget Questions • What Is the Expected ADR? • What Is the Departmental Income? • How Do Actuals Compare With Budgets? • What Is the Projected Net Income?

  4. Budget • A Management Plan Covering All Phases of Operations for a Definite Period in the Future. • It Is a Formal Expression of the Plans, Objectives, and Goals Established by Management.

  5. Budget • Budgets Are Presented for the Concern As a Whole and for Each Subdivision. • Organized Estimates of the Future • Management Policy • Method of Control

  6. Types of Budgets • Long Term and Short Term • Capital Budgets • Buildings, land, equipment • Cash Budgets • last one done but most important • Operating Budget • Day to day revenues & expenses

  7. Types of Budgets • Departmental Budget • Depts roll into overall budget • Master Budget • Combined budget for property • Fixed Budget • Static not based on volume • Flexible Budget • Based on volume

  8. Benefits of Budgeting • Forces Management to Examine Alternatives Prior to a Course of Action • Compels Management to Examine Facts • Provides a Standard for Comparison

  9. Benefits of Budgeting • Allows Management to Prepare for Future • Measures Progress and Self Evaluation • Objectives Are Clear • Management Is Participatory • Aids in Pricing

  10. Disadvantages of Budgeting • Time and Cost • Unknown Factors • Breaching Confidentiality • Spending Because “Available”

  11. Budget Cycle • Establish Realistic Goals • Planning • Comparing • Corrective Action • Improvement

  12. Budget Cycle • Establish Financial Objectives • Forecast Revenues • Estimate Expenses • Forecast Net Income

  13. Budget Cycle • If the Board Accepts the Budget, the Process Is Complete. If It Does Not, Another Budget Is Developed and Proposed.

  14. Issues in Budgeting • Who Is Responsible for Budgeting? • Incremental Budgeting • Zero-base Budgeting • Budgeting in a New Operation

  15. Issues in Budgeting • Budgetary Control Determine Variances Identify Significant Variances Analyze Significant Variances Identify Problems Correct Problems

  16. Variance Analysis - Sales • Revenue Budget Variance Total Actual Sales – Total Budgeted Sales • Volume Variance VV = BP * (AV - BV) • Price Variance PV = BV * (AP - BP) • Price-Volume Variance P-VV = (AP - BP) * (AV - BV)

  17. Variance Analysis - Cost of Goods Sold • Expense Budget Variance Total Budgeted Expenses – Total Actual Expenses • Cost Variance CV = BV * (BC - AC) • Volume Variance VV = BC * (BV - AV) • Cost-Volume Variance C-VV = (BC - AC) * (BV - AV)

  18. Variance Analysis - Variable Labor • Labor Budget Variance Total Budgeted Labor – Total Actual Labor • Volume Variance VV = BR * (BT - ATAO) • Rate Variance RV = BT * (BR - AR)

  19. Variance Analysis - Variable Labor • Efficiency Variance EV = BR * (ATAO - AT) • Rate-Time Variance R-TV = (BT - AT) * (BR - AR)

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