The DecadentDaiquiri is a poolside bar at the BahamasBeach resort that specialises in mixing daiquiris. August’s budget for the bar is based on the following projections:

Sales: 9,000 daiquiris at $7 selling price

Cost of Sales: $18 per one litre of rum; one litre makes 20 daiquiris (note: there are other ingredients but their cost is negligible)

The DecadentDaiquri's actual performance for August was:

Sales: 10,800 daiquiris at $7.50 selling price

Cost of Sales: $19 per one litre of rum; 515 litres were used

Using the templates on the left:

- conduct a Master Budget (Level 1) and Flexible Budget (Level 2) variance analysis on revenues, expenses and profits.

- conduct a Direct Material (Level 3) variance analysis on the inputs, and compare the Level 3 variances with the Flexible Budget variances from Level 2.

- for each variance at every level: name the type of variance, quantify the variance and shade the cell green (for favourable variances) or red (for unfavourable variances).

Then, answer these questions:

(a) Which provides a better basis for evaluating the performance of the DecadentDaiquiri manager – actual performance against budget, or actual performance against flexible budget? Why?

(b) Suggest logical and hospitality-appropriate operational causes for the direct material variances that you identified, i.e., what might have happened to make the amount of inputs or cost of inputs change?

	Actual	Flexible Budget	Budget
Revenue
Cost of Sales
Gross Profit
Levels 1 & 2: Master Budget and Flexible Budget Variance Analyses (Revenues)
	Actual	Flexible Budget		Master Budget
Revenue
Quantify the Variance
Name the Variance
Quantify the Variance
Name the Variance
Levels 1 & 2: Master Budget and Flexible Budget Variance Analyses (Expenses)
	Actual	Flexible Budget		Master Budget
Cost of Sales
Quantify the Variance
Name the Variance
Quantify the Variance
Name the Variance
Levels 1 & 2: Master Budget and Flexible Budget Variance Analyses (Profits)
	Actual	Flexible Budget		Master Budget
Gross profit
Quantify the Variance
Name the Variance
Quantify the Variance
Name the Variance

		Actual Results	“Inbetweener”		Flexible Budget
		Actual Volume X Actual Price	Actual Volume X Budgeted Price		Adjusted Volume (projected usage per unit x actual sales units) X Budgeted Price
Level 3 Analysis	Quantify the Variance
	Name the Variance
Level 2 Analysis	Quantify the Variance
	Name the Variance