QUESTION ONE Open Saf (OS) Limited is an all weather holiday company with a resort complex which provides holidays throughout the year The fee charged to guests is fully inclusive of accommodation and all meals However, because the holiday industry is so competitive, OS is only able to generate profits by maintaining strict financial control of all activities The companys restaurant is one area in which there is a constant need to monitor costs Jean Robson is the manager of the restaurant At the beginning of each year she is given an annual budget which is then broken down into months Each month she receives a statement monitoring actual costs against annual budget and highlighting any variances The statement for the month ended 31 October is reproduced below along with a list of assumptions Open Saf Performance Statement for the month ended 31 October Actual Budget Variance (over under) Number of guests 22,320 19,200 3,120 Food 41,000 40,320 (680) Cleaning materials 4,464 3,840 (624) Heat, light and power 4,100 4,800 700 Catering Wages 16,800 14,400 (2,400) Rent, insurance nd depreciation 3,720 3,600 (120) 70,084 66,960 (3,124) Assumptions The budget has been calculated on the basis of a 30 day calendar month with the cost of rents, insurance and depreciation being an apportionment of the fixed annual charge The budgeted catering wages assume that there is one member of catering staff for every 40 guests staying at the complex per day and, the daily cost of a member of the catering staff is 30 All other budgeted costs are variable costs based on the number of guest days a) Using the data above, prepare a revised performance statement using flexible budgeting Your statement should show both the revised budget and the revised variances Also, ensure that your revised performance statement highlights the controllable and uncontrollable expenses of OS b) Explain what may in practice account for the identified variances c) Discuss benefits of flexible budgeting d) Briefly discuss the extent to which controllability principle may ensure fair evaluation of the performance of Jean Robson, the manager of the restaurant

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QUESTION ONE Open Saf (OS) Limited is an all-weather holiday company with a resort complex which provides holidays throughout the year. The fee charged to

QUESTION ONE

Open Saf (OS) Limited is an all-weather holiday company with a resort complex which provides holidays throughout the year. The fee charged to guests is fully inclusive of accommodation and all meals. However, because the holiday industry is so competitive, OS is only able to generate profits by maintaining strict financial control of all activities.

The companys restaurant is one area in which there is a constant need to monitor costs. Jean Robson is the manager of the restaurant. At the beginning of each year she is given an annual budget which is then broken down into months. Each month she receives a statement monitoring actual costs against annual budget and highlighting any variances. The statement for the month ended 31 October is reproduced below along with a list of assumptions.

Open Saf Performance Statement for the month ended 31 October

	Actual	Budget	Variance (over/under)
Number of guests	22,320	19,200	3,120

Food	41,000	40,320	(680)
Cleaning materials	4,464	3,840	(624)
Heat, light and power	4,100	4,800	700
Catering Wages	16,800	14,400	(2,400)
Rent, insurance nd depreciation	3,720	3,600	(120)

70,084 66,960 (3,124)

Assumptions:

The budget has been calculated on the basis of a 30-day calendar month with the cost of rents, insurance and depreciation being an apportionment of the fixed annual charge.

The budgeted catering wages assume that:

there is one member of catering staff for every 40 guests staying at the complex per day and,
the daily cost of a member of the catering staff is 30.

All other budgeted costs are variable costs based on the number of guest days.

a) Using the data above, prepare a revised performance statement using flexible budgeting. Your statement should show both the revised budget and the revised variances. Also, ensure that your revised performance statement highlights the controllable and uncontrollable expenses of OS.

b) Explain what may in practice account for the identified variances?

c) Discuss benefits of flexible budgeting.

d) Briefly discuss the extent to which controllability principle may ensure fair evaluation of the performance of Jean Robson, the manager of the restaurant.