You have owned an accommodation business for a few years, but only began to prepare operating and financial budgets for the business last year. Your actual figures for the previous year show that the business is not achieving the profits you forecasted and wish to achieve.

Your actual occupancy rate for the previous year was 70%. It's time to start preparing budgets for the next financial year. You believe that, with an annual advertising and marketing campaign costing $60,000 (+GST), you can increase the overall occupancy rate to 75%.

1) List four internal factors you must consider when estimating next year's occupancy rate.

2)List four external factors you must consider when estimating next year's occupancy rate.

3)

BUDGETS

Task 2

You've become aware of a new competitor opening in your local area. You consider decreasing rates by 10%. However, wages are currently under review and are likely to rise by 2.5% for all staff. If this occurs, you think you will have to increase the standard room rate to $125 if the business is to remain profitable. To determine the impact of these changes on your business, you need to compare the two scenarios.

Base your calculations on the following business information.

• Maximum capacity: 30 rooms
• Number of days per year: 365
• Expected occupancy rate: 75%
• Current tariff per room per night: $120
• Servicing costs per room/night: $23.06 labour

$5 supplies (bathroom, etc.)

• Anticipated wage rise of 2.5%

Fixed costs:

• Admin/reception salaries: 3 people @ $60,000 salary per annum
• Grounds & maintenance salaries: 2 people @ $50,000 per annum
• General manager salary: 1 person @ $85,000 per annum
• Utilities (electricity, gas, rates) $90,000 per annum
• Depreciation of PPE $140,000 per annum
• Advertising $60,000

When completing your calculations, don't forget to include labour on-costs.

• Superannuation contribution: 9.5%
• Payroll tax: 2%
• Safe Work premiums: 1%

	Option 1 - increase room rate + wage rise	Option 2 -reduce room rate by 10% + wage rise
	Rate / formula	Total $
Budgeted nights booked		8,213	8,213
Tariff revenues
Less variable costs
Room servicing labour
Room servicing supplies
Total variable costs
Contribution margin
Less fixed costs
Admin/reception salaries
Grounds & maintenance salaries
General manager salary
Utilities
Depreciation
Advertising
Total fixed costs
Net profit before tax
Less estimated tax expense (30%)
Net profit after tax

Task 3

It's essential to prepare a cash budget to maintain a business's solvency (or cash position). Although this could be done on a monthly basis, use the winter quarter figures to complete this activity.

Base your calculations on the following assumptions.

• All customers are charged 10% GST.
• 85% of customers pay their bills (including GST) within the same quarter of their stay at your establishment.
• The other 15% of customers pay in the following quarter.
• All expenses (other than depreciation) are paid in the quarter in which they are incurred.
• Figures provided for autumn quarter cash flows (inflow and outflows) are GST inclusive.
• All winter cash flow (inflow and outflows) figures in the above budget are GST free. GST must be calculated and added to all GST-attracting cash flow figures in the cash flow statement.
• Ignore PAYG deductions for this activity.
• The cash balance at the beginning of the winter quarter is $5,000.
• Round your figures up to the nearest whole dollar.

	Winter quarter $
Budgeted nights booked	1,232
Tariff revenues	154,000
Less variable costs
Room servicing labour	28,413
Room servicing supplies	$6,160
Total variable costs	34,570
Gross profit	119,427
Less fixed costs
Admin/reception salaries	51,891
Grounds & maintenance salaries	28,828
General manager salary	24,504
Utilities	22,500
Depreciation of PPE	35,000
Advertising	15,000
Total fixed costs	177,723
Net profit / (loss) before tax	-58,296

	Autumn quarter $	Winter quarter $	Est cash receipts winter quarter
Receipts from previous quarter's customers	256,625
Receipts from current quarter's customers
Total estimated cash inflows
Estimated cash outflows
Room servicing labour
Room servicing supplies
Admin/reception salaries
Grounds & maintenance salaries
General manager salary
Utilities
Advertising
Payment of net GST from autumn quarter * (see below)
Total estimated cash outflows
Net surplus / deficit
Cash balance at start of winter quarter
Cash balance at end of winter quarter

GST Liability for autumn quarter	$	$
GST collected and payable $256,625 10% =	25,663
Less GST paid: Supplies $10,265 10% =	1,027
Utilities $22,500 10% =	2,250
Advertising $15,000 10% =	1,500	4,777
Net GST for autumn - payable early in winter quarter		20,886

1)Evaluate the impact of the different room rates and wage rises on the business. Explain your response, referring to the financial data, information, calculations or budget forecasts you have based your explanation on when necessary.

2)What recommendations would you make to increase projected profit? Briefly list the benefits and challenges of your recommendation.

3)Why do you think this change is necessary?