Manage Finance Balancing Budget Control and Flexibility

Questions: 1,How do you think this business could be divided into cost centres? Why might the organisation choose to make these divisions?2.How will budgets contribute to operational efficiency and what types of budget might be appropriate for such an organisation? Why?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?4.What financial reports might be of benefit to this establishment? Why?5.What types of waste might it be necessary to carefully monitor and control and why would this be necessary?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?7.What types of budget deviation might occur and what should be done if deviations are identified? Answers: 1. As stated in the accounting principles that all the expenses should be recorded in the same accounting period as and when they occurred. For a hotel industry expenses, should be divided into two main categories they are Financial reporting centres: A financial reporting centre is considered as an area where the responsibility of separating any cost related information should be collected. This is further classified into revenue centres and support centres (Bicknell 2014). Revenue centres: Revenue centres consist of cost generated through sale of product and services to guests such as rooms, food and beverage, telephone, garage parking etc. Support centre cost: Support centre cost consists of cost incurred in providing services to revenue centres which in return provide service to guest. This cost consists of administrative and general cost, property operation and maintenance cost, human resource, data processing etc. 2.Operational occupancy consists of several budgetary approach and practices, which is implemented to achieve the fundamental objective of rendering quality service to guest under the most, price effective and appropriate manner. Resource exploitation, manufacture, allocation and inventory management are the most ordinary features of operational efficiency. In hospitality industry operating and capital budget are most often created. Operating budget consist of planned revenues and expenditure. On the other hand, capital budget consists of activities planned to invest in hotel business (Hofstede 2012). Investment which are usually perceived through this financial plan are investments that are related to the daily maintenance of equipment, purchase of inventory or any emergency investment to be made due to failure of providing services to guest etc. Hence, operational budgets are interrelated and are considered as indispensable for successful need of hotel business. 3. In hotel industry, the direct and indirect cost which is applicable are as follows; Direct expenses: The direct expenses consist of those expenses which vary with the level of production are cost of food sold, the higher the number of dishes served leads to larger cost of foods sales is incurred by the hotel (El Haddad,Hallak and Assaker 2015). Indirect expense: Indirect expenses, which are applicable to the hotel industry, are rent, insurance, property taxes, interest expenses, water expense etc. The above stated expenses should be considered in drawing up the budget as because they are clearly related to the occupancy of the hotel and business volume. Such cost have direct relationship with the business volume and they do not change with increase or decrease in sales. 4. The financial reports, which will be beneficial to the establishment, are as follows Group financial statement of comprehensive income Group financial statement of changes in equity Group statement of cash flows Group statement of financial position These statements are necessary as they provide true and fair view of the accounting concepts and reflect the liquidity position of the hotel. Preparation of financial statement would help providing overview of the financial investment and the material used during the operations to generate the desired level of revenues. 5. Type of hotel waste necessary to monitor and control are Waste generated from vegetables Dry waste consisting of plastic bottles, papers, plastic wrappers, HDPE, LLDPE bags, reusable coffee filters, condiments of bulk dispensers etc. Necessity of controlling waste: Controlling waste would help in reducing the impact create from landfilling. Thus, it will help in eliminating paper, plastic and cardboard waste that has negative impact on the environment. Recycling of aluminium tins into new tins would lead to reduction of energy as many discarded materials such as furniture and food also have value (Hofstede 2012). Thus, it is resource effective to make new products by recycling rather starting from scrape. 6. In hotel industry, the general manager is considered as the head executive accountable for the general functions of an establishment together with both the monetary profitability (Francesco and Alford 2016). The ordinary duties of general manager are not only restricted to hiring and managing employees but also includes reporting financial management such as budgeting, revenue management, project management to enforce hotel business objectives. 7. Types of budget variance that might occur in hotel industry are as follows; Variance arising out of inaccurate budgeting caused to due to unpredictable occurrence of events which was beyond the control of business Loss of inventory due to unpredictable event occurring outside the sphere of business control Steps to control budget deviation are There should be a statement of financial resources which should be set aside for executing specific activities by co-ordinating with the activities of the organisation A controlling technique should be implemented where actual results are compared with the budgeted amount, which will help in reflecting any difference made by the responsibility centres. Reference List: Bicknell, K.N., Trane International Inc., 2014.Active Energy Budget Control Management. U.S. Patent Application 14/587,366. Di Francesco, M. and Alford, J., 2016. Balancing budget control and flexibility: the central finance agency as responsive regulator.Public Management Review, pp.1-18. El Haddad, R., 2015. Exploration of revenue management practicescase of an upscale budget hotel chain.International Journal of Contemporary Hospitality Management,27(8), pp.1791-1813. El Haddad, R., Hallak, R. and Assaker, G., 2015. Price fairness perceptions and hotel customers behavioral intentions.Journal of Vacation Marketing,21(3), pp.262-276. Hofstede, G.H. ed., 2012.The game of budget control. Routledge. Yan, Q.Y., Shen, H.J. and Kong, H., 2016. Assessing Hotel Cost Control Through Value Engineering: A Case Study on the Budget Hotels in a Middle-sized City in China.Asia Pacific Journal of Tourism Research,21(5), pp.512-523.