What you may not have known about budgeting in food and beverage

1. By: Murage Macharia

2. Objectives
At the end of the topic students are expected to be able
to:
1.define given terms
2.explain the functions of budget
3.prepare a given budget
4.discuss budgetary control.
Murage Macharia

3. Introduction
A budget is a quantitative expression of a plan for a
defined period of time. It may include planned sales
volumes and revenues, resource quantities, costs and
expenses, assets, liabilities and cash flows. It expresses
strategic plans of business units, organizations,
activities or events in measurable terms.
Murage Macharia

4. Budgetary Process
This is the process of converting plans into
budget. Budget can be expressed in terms of
i)
Cash budget
Sales budget
Labour cost budget
Budgeted profit and loss account.

Murage Macharia

5. Cont….
Other than money for example personnel budget
may project the number of separation over a period
of time and show number of employees to be
engaged for various departments.
ii)
iii)
Budget percentage of room occupancy.
Budgeted number of cover.
Murage Macharia

6. Budgeting Control
This is a means whereby responsibility for budgeted
results is assigned to the managers concerned. It is
the personal responsibility of a manager in relation
to the establishment or department or certain that
he controls the responsibility is expressed in terms
of
The target group.
The profit margin.
The cost of operations
The profit target
The comparison of budgeted and the actual results.
Murage Macharia

7. Objectives of Budgeting
Planning
Planning must be properly co-ordinate and
comprehensive for the whole business.
Control
Manager must be given a guide to help him to produce
a certain desire result and the actual achieved results
can be compared against the expected.
Murage Macharia

8. Objectives of budgetary
control
To give practical expression to the aim and policies
of the business e.g. assessment of the sales
performance of the business and this will depend
on:
a) Past performance
b) Current trends
c) Any limiting factor.
Murage Macharia

9. Cont….
NB// any analysis of past sales should distinguish
between food sales, accommodation sales etc.
However there could be negative effects on sales
caused by:
a.
b.
c.
d.
Condition of local industries
State of employment
Political situation
Government policy
Murage Macharia

10. Kinds of Budgets
Capital Budget
It deals with assets and capital funds of a business.
Operating Budget
Deals with the income and expenditure of a business.
Master Budget
It in co-operates all the income and expenditure plus
the assets and liabilities of a business
Murage Macharia

11. Cont….
Departmental Budget
It is done in respect to the single department of
business e.g. special functions like banqueting,
wedding receptions, the sales and purchases have to
be budgeted for.
Fixed Budget
This is a budget which is independent on the level of
turnover e.g. advertising office administration,
maintenance budget; this is because short-run
changes in the volume of turnover have no effect on
the budget concerned.
Murage Macharia

12. Cont…
Flexible Budget
Budget which provides for several level of turn over and
pre-determines cost or cash flow accordingly, for
example changes in the rate of room occupancy may
affect labour cost in a small hotel.
Murage Macharia

13. Examples of Limiting factors in
a business Establishment
Size and capacity of the establishment.
Special functions capacity – limited availability of
facilities.
Sitting capacity – seats available are limited.
Consumer demand – depend on the area, the
population, the average income competitors transport
facilities and weather conditions.
Murage Macharia

14. Cont….
Quality of management and staff will enhance the
reputation of the establishment and thus increase the
sales potential. Unskilled staff is disastrous, good
quality food comes from skilled staff and the
efficiency of the waiting staff will be reflected in the
service offered.
Insufficient capital – lack of enough funds to expand.
Murage Macharia

15. Cont….
Management policy – if the management have laid a
set policy that will only cater for a certain type of
customer and will accept certain type of business such
as football or rugby netball and pool games
Murage Macharia

16. Sales Budget
The purpose of the sales budget is to pre-determine
the volume of sales in respect to a trading period; this
enables an assessment of the sales performance in a
business at the end of that period.
Murage Macharia

17. Importance of Sales Budget
It has an influence on the volume of sales on
profit.
It influences the preparation of other budgets.
Budgeted volume of sales will influence.
Budget food & beverage cost
Labour cost
Overhead cost
Murage Macharia

18. Cont….
Budgeted volume of sales will depend on
Past performance
Current trends
Any limiting factor which may be in operation
with this budget.
Murage Macharia

19. Development of Sales Budget
Factors to be considered:
For each revenue produced department special
Circumstances affecting each department.
Complete analysis of the previous years, actual sales
figure for each department.
Analyses of the sales mix percentages.
A careful study of propable future trends and
purchases.
Murage Macharia

20. Cont….
Any significance change in the sales milk must be
analyzed to see what effect will have on the purchase
budget.
Any changed in the use of food stuffs e.g. pre-packed
commodities or convenience foods must be noted and
studied for effect on the cost of purchases.
Any change in supplies.
Murage Macharia

21. Budgeted Profit and Loss
Account
This is to pre-determine in the respect to a particular
trading period all the income and expenditure of a
business as well as the net profit to be carried. E.g.
departmental gross profit, labour cost percentage,
overheads percentage and net profit percentage.
Murage Macharia

22. Labour Cost Budget
Labour cost budget are budgeted for in relation to the
budgeted volume of sales, the higher the volume of
sales the higher the total cost of labour.
NB// A given increase in the volume of sales must not
necessarily result in a proportionate increase in
labour cost. When sales arising many components of
the total cost of labour remain fixed e.g. management
and supervisory salary. Labour costs are fixed and
others tend to vary in the same direction as the
volume of sales.
Murage Macharia

23. Factors considered in Preparation
of labour cost budgeting
The number and grade of each staff in each
department.
The budgeted rate of paying for each grade of staff.
Casual and part time labourers.
Cost of national health insurance.
All accommodation, holidays with pay, bonuses and
commission.
Murage Macharia