Question
DeOne by Chef Dr Wan owns a number of restaurants. It is a good and reputable company. DeOnes restaurants are all set in rural locations,
DeOne by Chef Dr Wan owns a number of restaurants. It is a good and reputable company. DeOnes restaurants are all set in rural locations, where there is limited competition and this enabled them to develop a loyal customer base. Restaurants make their own menus and dcor to fit with the requirements of their local market. DeOne has been consistently profitable, however compare to the restaurant industry, profit margins are quite low and there is still a constant need for DeOne to monitor costs. One of DeOnes restaurants is located in the small town of Taiping. Taiping has recently been the location for the filming of a popular television series and visitor numbers to the town have increased significantly as a result. DeOnes restaurant in Taiping has noticed a similar increase in customer numbers. At the start of the current month a new restaurant opened in Taiping. The manager of DeOnes restaurant in Taiping has expressed concerns about the impact this new competitor will have on their ability to achieve profit targets for the rest of the year. Budgets for all of DeOnes restaurants are prepared by the head office. At the start of each year, restaurant managers are given an annual budget, which is split into months. At the end of each month, the manager receives a statement comparing actual monthly performance against budget.
Actual | Budget | Variance | |
Number of customers | 1,800 | 1,500 | |
RM | RM | RM | |
Revenue | 87,300 | 75,000 | 12,300 F |
Costs: | |||
Food and drink | 26,100 | 22,500 | 3,600 A |
Staff wages | 38,250 | 31,500 | 6,750 A |
Heat, light and power | 8,100 | 7,500 | 600 A |
Rent, rates and other overheads | 12,600 | 12,000 | 600 A |
Profit | 2,250 | 1,500 | 750 F |
Notes: Rent, rates and other overheads are apportioned to its restaurants by DeOnes head office, based on a fixed annual charge. All other budgeted costs are treated as variable costs, based on the expected number of customers. DeOne adopted an incremental approach to make budgeting and it done annually. In September this year, DeOne appoint a new Finance Manager, Fahad and Fahad has questioned whether this is suitable for all DeOnes restaurants. Fahad also suggested that the company should adopt a more participative approach to budgeting. Required: a) As Fahads Assistant, please prepare a flexed budget for the Taiping restaurant. b) Briefly explain, how to measure performance for the July budget (please refer to your answer above to answer this question). c) Fahads suggested that, company should adopts more participative approach and Director want you to explain whether an old incremental approach budgeting is still appropriate for DeOne. d) Briefly explain to the DeOne Directors about participative approach and explain the pros and cons of introducing this approach at DeOne.
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