By: Murage Macharia

Objectives At the end of the topic students are expected to be able to:1.define given terms2.explain the functions of budget3.prepare a given budget 4.discuss budgetary control.

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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.

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Budgetary ProcessThis is the process of converting plans

into budget. Budget can be expressed in terms of

i)Cash budgetSales budgetLabour cost budgetBudgeted profit and loss account.

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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) Budget percentage of room occupancy.iii) Budgeted number of cover.

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Budgeting ControlThis 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 operationsThe profit targetThe comparison of budgeted and the actual results.

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Objectives of BudgetingPlanningPlanning must be properly co-ordinate and

comprehensive for the whole business.

ControlManager 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.

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Objectives of budgetary controlTo 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 performanceb) Current trendsc) Any limiting factor.

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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. Condition of local industriesb. State of employmentc. Political situationd. Government policy

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Kinds of BudgetsCapital BudgetIt deals with assets and capital funds of a business.

Operating BudgetDeals with the income and expenditure of a

business.

Master BudgetIt in co-operates all the income and expenditure

plus the assets and liabilities of a business

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Cont….Departmental BudgetIt 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 BudgetThis 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.

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Cont…Flexible BudgetBudget 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.

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Examples of Limiting factors in a business EstablishmentSize 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.

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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.

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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

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Sales BudgetThe 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.

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Importance of Sales BudgetIt 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 costLabour costOverhead cost

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Cont….Budgeted volume of sales will depend on Past performanceCurrent trendsAny limiting factor which may be in

operation with this budget.

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Development of Sales BudgetFactors 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.

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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.

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Budgeted Profit and Loss AccountThis 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.

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Labour Cost BudgetLabour 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.

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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.

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