Written Answers

SITXFIN003 – Manage Finances within budget

 SECTION 1: ALLOCATE BUDGET RESOURCES

Q1: What is a budget and how does it help a business achieve its goals?
⇨ Definition

A budget is a comprehensive budgetary forecast that shows projected profits and

expenditures over a set period of time. This information can then be used to calculate a
company's profitability.

⇨ Purpose

A budget lays out a strategy for funding the company's operations. It lays out the objectives
to be met, compares real to budgeted estimates to see whether they've been met, and
determines if the company, agency, or source is supposed to make a profit or loss, and
therefore if money is sufficient for other projects including new lighting or renovations.

Q2: What determines how business funds are divided amongst different departments and
projects?
In accordance with the budget and the agreed-upon targets, funds are divided amongst
different departments and projects.

Q3: What is the difference between a fixed (static) and flexible (variable) budget?
A fixed budget is typically created at the start of a budget cycle for a particular region or
channel, for specific targets, or for areas that are unrelated to production or sales. This ensures
that the estimates remain stable during the budget cycle, regardless of the organization's
actual revenue or expenditures.
A flexible budget requires changes in response to changing circumstances and can display
figures for a variety of scenarios. This enables staffing needs and stock expenditures to be
prepared at these various levels.

Q4: What is a cash flow budget and what is it used for?

Cash flow budget forecasts cash flow into and out of the company using data from the revenue
and operating budgets. This helps you to calculate how much cash or funds are available or
must be spent at any given time.

Q5: What is a profit and loss budget and what is it used for?
It is described as sales or benefit budgets, are projections of what your profit and loss (or
income) statement would look like at the end of a given period. It displays your projected
revenue and expenditures for a given time span, as well as whether you can make or lose
money at the end of the period.
 Q6: What do the following terms mean?
⇨ Financial viability

It refers to a company's ability to produce enough revenue to cover all of its obligations
while still making a profit.

⇨ Profitability
It refers to a company's ability to generate enough revenue from its assets to cover all of
its operating expenses. It displays the profit made by the company as a percentage of the
amount invested in properties, and it can be expressed as a ratio or percentage.

⇨ Liquidity
It refers to the supply of cash or assets that can be converted to cash easily and used to
pay for goods, services, and capital assets.

Q7: What is a budget cycle?

The budget cycle refers to the steps taken from the beginning of the budget development
process to the final transaction in the budget period. This might imply
• A calendar year (1st Jan to 31st Dec)
• A financial year (1st July to 30th June)
• A corporate year (1st Oct to 30th Sept)

Q8: What must you do when budget priorities are changed? Explain why.
Before implementing any improvements to income and spending goals, talk to your coworkers
about it. This helps them to recognise any areas of concern or possible problems that the
proposed changes can cause. Keeping them updated also aids in gaining their dedication to
meeting budget objectives.

Q9: Your budget allows only a limited amount of funding for wages. Who needs to know
about these types of resource decisions? Explain why.
Staff must be informed about resource allocation decisions. They should be aware of the
company's objectives and the rationale for resource allocation. If the budget only provides for
a small amount of salary support, for example, employees must understand the value of
sticking to their current roster in order to better handle this. Managers can set goals, but the
majority of the time, the whole team must work together to achieve them.

Q10: List two ways you can promote awareness of the importance of budget control.
 Posters: reminders of methods for cutting costs, such as rotating stock or turning equipment
off when not in use, could be placed in strategic positions.
o Noticeboards: copies of budgets or information on advertising campaigns or
promotions could be placed here for staff to look at after the meeting.
Q11: How does promoting the importance of budget control help you achieve team
or work area goals?
• It will help create a more team-orientated attitude to the workplace if everyone shares the
same goals.

• The team understand why they need to complete certain activities or follow procedures
such as selling more products, controlling waste, or turning the lights off when they go
home.

• They can actively assist in achieving goals if they know what they are.

Q12: Why is it important to record resource allocation?

It allows the user to monitor results, analyse production and productivity, control costs and
cash flow, detect and correct anomalies, and report on potential improvement
opportunities.

Q13: Budgets are not the only source of information relating to where resources are
allocated and controlled within a business. List four other records used to show resource
allocation.
• Taxation records
• Business agreement
• Balance sheets
• Bank account records
SECTION 2: MONITOR FINANCIAL ACTIVITIES AGAINST BUDGET

Q14: Why do we record and compare actual performance figures with budgeted figures?
This is to see how the budgets are being pursued, if goals are being reached, if resources are
being distributed properly, and if the budgets were realistic or if future budgets need to be
changed.

Q15: How often should you check actual income and expenditure figures against budgets?
It may be regular, weekly, monthly, or annual, depending on the type of budget and company
policy.

Q16: List six types of financial records you can use to check income and expenditure
information.
• Cheque books
• Invoices
• Transaction reports
• Bank statements
• Journal entries
• Bank summaries

Q17: What is one benefit of using computerised systems to maintain financial records?
It can update and distribute information, especially when systems are linked and can exchange
data.

Q18: What are financial commitments in a business?

Funds that the company must invest in order to survive are called financial commitments.

Q19: List two examples of financial commitments for a business in your industry sector.
• Utilities
• Debts

Q20: There are four basic types of expenses you need to record in financial documents to
ensure accurate monitoring. Describe and give one example for each type.
⇨ Fixed costs
There are fixed costs that do not change regardless of how busy or quiet the company
is. Rent, lease fees, and insurance are some examples.
⇨ Variable costs
The costs vary according to the level of operation in the sector. Purchases of
food and beverages, as well as salaries, are examples.
⇨ Direct costs
These can be directly related to the manufacture or supply of products and services,
such as food and drinks purchased for a particular outlet, as well as compensation for
employees working in that outlet.
 ⇨ Indirect costs
Indirect costs, such as administrative or marketing wages, certain services, or
telecommunication expenditures, cannot be directly connected to a sales item or
operating outlet.

Q21: What are the formulas used to calculate a budget variance and a budget
variance percentage?

Budget variance = Actual - budget

Budget variance % = (Actual - budget) / budget X 100

Q22: Check the figures in the sales budget below. Which department’s figures have been
calculated correctly?

Sales Actual $ Budget $ Variance $ %

Bistro 35,000 45,000 (10,000) (22.22)
Public bar meals 9,000 8,000 1,000 12.25
Club bar meals 8,000 9,000 1,000 11.11

Q23: Indicate if the following budget results are a favourable or unfavourable result.

Actual income is above budget Favourable

Actual income is below budget Unfavourable

Expenses are above budget Unfavourable

Expenses are below budget Favourable

Q24: What are the four main reasons budget deviations occur?
• Targets were not met due to operational factors.
• Targets were set too high or too low.
• The conditions on which the original budget forecasts were based changed.
• Unforeseen circumstances arose which affected budget results.

Q25: What factors do you need to consider when deciding whether or not a budget deviation
should be investigated further?
 • The consequences of investigating: can you or are you able to take action?

• The cost of investigating the deviation: is it worth it?

• size of the variance.
• How often the variation occurs: once or on a regular basis.

Q26: List three options you might consider to help manage budget deviations effectively.
• Ensure stocktake are conducted regularly to manage stock level efficiency.
• Use efficient energy management techniques.
• Update actual figures regularly so that deviation trends can be identified quickly.

Q27: List four types of information about budget targets you should discuss with staff
members.
• Improvements – changes to be made to improve performance.
• New goals – changes to targets, work practices, procedures, products or services.
• Successes – targets achieved, how they were achieved, and how the team can maintain levels
of performance.
• Concerns – targets not achieved, external and internal factors affecting performance.

SECTION 3: IDENTIFY AND EVALUATE OPTIONS FOR IMPROVED BUDGET PERFORMANCE

Q28: How does trend analysis help identify areas for improvement in budget
performance?
 When statistics and budget variances are compared over time, it is possible to see if there is
a trend or pattern in the statistics or budget variances. These are known as financial and
non-financial metrics, and they indicate whether the company is underperforming or
overperforming.

Q29: What are two questions you should be asking when assessing existing costs
and resources?
• How can you increase sales?
• How can you do better?

Q30: When identifying new approaches to budget management, who should you discuss
desired budget outcomes with? Give a generic answer or name the appropriate job role/
positions in your workplace or training environment.

All relevant colleagues, such as coworkers, stakeholders, other managers, and so on, may be
included in a generic response. A workplace-specific response could include roles such as
employee, colleague, boss, and management within the organisation.
• Colleagues
• Existing suppliers
• New suppliers

Q31: What approaches or possible options can you investigate further to control and
improve the management of expenses in a business?
• Providing staff training
• stablishing contingency plans
• Making or buying products
• Sourcing new suppliers
• Conducting spot checks

Q32: What approaches or possible options can you investigate further to control and
improve the management of payroll expenses in a business?
• Restructuring staff
• Assessing workforce turnover & absenteeism
• Checking timesheets
• Paying correct rates for job roles
• Controlling rosters, start and finish times, staffing levels, annual leave
• Assessing labour structure – part and full time, casual
• Level of equipment breakdowns
• Level of staff training
• Assessing and increasing performance – production, time and motion, skills analysis

Q33: List three approaches or possible options you can investigate further to control and
improve the management of accounts payable in a business.
• Negotiating with suppliers for better contract terms and conditions
• Payment periods for accounts
• Buying items in bulk to gain discounts
• Using just-in-time inventory systems

Q34: List three main methods businesses use to increase their profits.
• Change price structure
• Reduce price discounts for bulk orders.
• Change more output.

Q35: You want to make recommendations for improved budget management and set new
budget targets. List two people you should present your recommendations to.
• Management team
• General manager

Q36: The impact of any changes must be considered when developing new approaches or
changes to budget management. List one potential benefit or disadvantage that may
occur when implementing changes in the following areas.

⇨ Customer service

In customer service, changes may have negative effects leading to an increase in

customer complaints, reduction in the volume of return business, or lead to loss of
image. Changes may lead to improvements in service, increasing sales and profits.

⇨ Staff morale

Sales will increase, and staff turnover and absenteeism may decrease, if employees are
tolerant of changes.

Staff morale may be harmed, resulting in weak teamwork, higher costs, higher staff
turnover, and absenteeism.

Q37: How should you present your recommendations for improved budget
management? Make sure you communicate clearly and that your ideas are rational
and realistic.

Q38: List three examples of the type of information you should include when presenting or
communicating about recommendations for budget management.
• How the changes will improve the operation or affect the budget performance.
• Anticipated effect on sales and expenses.
• How and when the changes will be implemented and by whom.

SECTION 4: COMPLETE FINANCIAL AND STATISTICAL REPORTS

Q39: What information might you need to include when preparing a statistical or
financial report for the supervisors in a suburban hotel? List five examples.

• Performance of each department

• Income and expenditure
• Recommendations for improved budget controls
• Daily, weekly, and monthly transactions and reports
• Causes of variance: possible reasons for variances, if they are one-off situations or
ongoing causes for concern, short-term and long-term effect on the business

Q40: What information might you need to include when preparing a formal
statistical report for the management team of a large events or reception
centre? List five examples.

• Sales trend
• Cash flow
• Sales performance
• Staff and wages cost
• Occupancy rates

Q41: How can you present reports to enable informed decision-making?

• Present information using graphs, chart and other visual diagrams

• Make sure all appendices and attachments are include with the report
• Choose the right format
• Don’t include irrelevant or duplicate information
• Provide clear, concise and relevant information

Q42: How do you know when to complete reports?

When it comes to allocating timelines for report preparation and delivery, the purpose
of the report is the most important consideration. Such reports are prepared on a daily
basis (such as a flash report), while others are done on a weekly, quarterly, or annual
basis.
Q43: Explain how the features of accounting software programs can assist you to
manage budgets.

Due to faster processing, upgrading, and delivery of information, computerised

systems have faster turnaround times than manual systems, particularly when the
different systems are linked together and can exchange information.