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    Finance Management Sample

    Task 1

    A. Objective of preparing a budget for Twin Rivers Café:

    Budgets are general revenues/sales forecasts and various expenses for the specified period ahead and are typically collected and reviewed on a periodical basis. A budget acts as an internal structure by managers of corporations like Twin Rivers Café and is not often required to be communicated by external entities like interested parties. Overall production activities are subject to financial budgets. The budget is main method used to monitor expenditure and budgetary discrepancies by financial analysts.

     (Finance and Network, 2013). Company should consider inconsistencies between plans and actual-costs by comparing the forecast with actual figures. The bigger the variances, the bigger the need for managerial assistance. A budget could help to set priorities, track progresses and make contingency planning, in addition to apportioning resources. This also encourages the corporation to have those employees accountable for reducing budget disparities. A well-designed budget allows a corporation to monitor where it is financially. It makes long-term strategical and visionary planning feasible by showing deviations from the current operating expenditures. In this regard, some main budget objectives are as follows:

    Measure performance:

     It is an universal aim of generating a budget, which is based on budgeting differences, to measure the efficiency of personnel. This is a complex job as managers want to adjust their plans to help them achieve their personal goals.

    Predict cash flows: 

    Budget is valuable for fast-growing companies, with seasonal revenues, or with erratic patterns of sales. Such corporations have a hard time predicting how much money they are going to have in near term, leading to frequent cash-related problems.

    Provide structure:

    A budget is particularly beneficial to provide instructions to a corporation as to the route it is intended to go forward. It therefore sets the foundation on which to decide what to do next (Makings and et.al., 2014).

    Allocate resources:

    Many businesses like Twin Rivers Café use budgeting mechanism as a tool to determine where to assign funds for different activities, like acquisitions of fixed assets. Although a legitimate goal, this should be paired with an evaluation of capacity constraints to decide where assets should be assigned (Senthilkumar and et.al., 2012).

    Model scenarios:

    If an organization has a range of possible directions it can move down, company can develop a series of budgets to predict financial outcomes for each tactical route, each focused on various scenarios. this aim can lead to extremely unlikely outcomes if manager allows itself to become extremely optimistic in incorporating assumptions into design of budget.

    Tool for decision making:

    The aim of budget is to provide a fiscal structure for decision-making processes. It help to ensure that all decisions taken by company are as per the targets determined in budget. Management by analysing budgets and any variance can take financial or operational decisions (Gago-Rodríguez and Purdy, 2015).

    Monitoring business performance:

    Budgeting is intended to allow the current business results to be evaluated against business output prediction, i.e. business that meets expectations. It enable corporation to track the overall business performance as on a particular date.

    Forecast of income and expenditure: 

    This is core purpose of a budget to predict business's income, receipts and expenditures reliably and accurately. Company by framing budget determines the base for making estimation of incomes and expenses.    

    B. Report showing the company’s revenue and spending variance for July along with explanation:

    Planning And Actual Budgets For The Month Ended July 31, 2018





    Budgeted meals quantity(Qty.)





    £ 81000

    £ 80100

    £ 900 A





    Raw material (£ 2.40q)

    £ 43200

    £ 42720

    £ 480 F

    Wages and salaries (£ 5 200+£ 0.30 q)

    £ 10600

    £ 10540

    £ 60 F

    Utilities (£ 2 400 + £ 0.05 q)

    £ 3300

    £ 3290

    £ 10 F

    Facility rent (£ 4 300)

    £ 4300

    £ 5100

    £ 800 A

    Insurance (£ 2300)

    £ 2300

    £ 2600

    £ 300 A


    £ 2480

    £ 2490

    £ 10 A

    Net Operating Income

    £ 14820

    £ 13360

    £ 1460 A

    In the above-mentioned report F denotes favorable variance for the enterprise while A denotes unfavorable or adverse variation. From above variance analysis, it was evaluated that 17,800 items were actually sold as opposed to expected revenue units of 18,000 business, resulting in an adverse variances in revenue of £ 900. Although RM's scheduled cost is £43200 compared to RM's actual incurred cost, i.e. £ 42720 signifying a favorable variance.

    The salaries and wages expenses of the corporation have noted a favorable variance of £60, as well as there is a saving of £ 10 in spending on utilities as planned. On other hand, there have been negative variances in rent facilities, insurance and fuel of £800, £300 and £10. The total net-operating profit of the organization also indicates an unfavorable difference of £ 1460.

    C. Activity of variance should be of concern to management:

    Based on the review of above presented variance study, it has been established that there are multiple variances activities in company Twin Rivers Café that must be targeted by managers in order to attain planned estimates. Next, Cafe is struggling to generate the target sales, resulting in a substantial difference in operating profits of the company. There are three costs that are raised relative to expected figures with even revenue volume decline. Such costs are rent, fuel and insurance services.

    there are substantial differences in all of these expenditures. Renting facility is £800 higher than expected. While there are also higher insurance premiums premium premiums than expected figure. Fuel costs are also higher than level planned. Ignorance of this key variance leads to a downturn in the aggregate business performance. Management should make sure to reduce the variance gape in such operations. There is also a significant difference in prices and amounts since the variability suggests that the business can not produce expected profits (Vance and et.al, 2016).        

    D. Advise and Suggestions to Twin Rivers Cafe:

      In order for variances to be maintained, these discrepancies are best explored in quarterly/monthly reports and routine meetings between top-management and unit managers. Cafe Twin Rivers suffers with low sales according to preset expectations. Managers should therefore work on this area first. Owners and management must also analyze their expected or projected profits to see if planned performance relies on the cafe's efficiency and effectiveness. Based on tourism habits, arrivals, flights and consumer desires, the business will establish schedule, as the company prepares food for visitors/citizens and is situated in close proximity to the regional airport. Once the potential impact of such elements on Cafe business is regarded, the planned earnings must be ascertained. In ascertaining the estimated sales, any cyclical effect, inflations impact and further environmental impacts should also be taken into account.

    Furthermore, fixed expenditures such as facilities rent and insurance costs also grow with a remarkable sales increase. In this context, these costs should be optimized in order to reduce the variability gap in operating income. For healthier evaluation and financial planning, the organization should categorize its costs as fixed and variables. In order to optimize such expenditures, it is crucial for companies to identify factors that lead to increased costs. Insurance and Rent-facilities should be regarded as fixed expenses not affected by variation in the total sales price or statistic.

    In addition, a corporation should develop effective control and permission of payments for fuel expenditures in order to reduce fuel costs. In order to establish an efficient internal control system, the business also may segregate fuel costs authorization. Company should also place internal check on expenses to control and maintain overall expenditures (Lidia, 2015).        


    The above study shows that the budgets are an important component of an organization identifying its output and determining variables which affect the accomplishment of defined goals. To order to enhance and maintain business performance, managers must take various variances on priorities. Company could also use budget effects to test the feasibility of such actions and make specific strategic decisions.    

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    • Finance, E.H. & Network, C., (2013). The eurosystem household finance and consumption survey-results from the first wave (No. 2). ECB statistics paper.
    • Makings, U., & et.al., (2014). Importance of budgets for estimating the input of groundwater-derived nutrients to an eutrophic tidal river and estuary. Estuarine, Coastal and Shelf Science. 143. pp. 65-76.
    • Senthilkumar, K., Nesme, T., Mollier, A. & Pellerin, S., (2012). Regional-scale phosphorus flows and budgets within France: the importance of agricultural production systems. Nutrient Cycling in Agroecosystems. 92(2). pp. 145-159.
    • Gago-Rodríguez, S. & Purdy, D.E., (2015). The effects of budgetary knowledge and extrinsic motivation on the importance that managers attribute to their budgets. Spanish Journal of Finance and Accounting/Revista Espanola de Financiacion y Contabilidad, 44(1), pp. 47-71.
    • Vance, D., & et.al, (2016). The oceanic budgets of nickel and zinc isotopes: the importance of sulfidic environments as illustrated by the Black Sea. Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences. 374(2081). p. 20150294.
    • Lidia, T.G., (2015). An analysis of the existence of a link between budgets and performance in economic entities. Procedia Economics and Finance. 32. pp. 1794-1803.


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