[ABKA350b: LOOKING FORWARD CASE STUDY ASSESSMENT]

Accounting Practices Assessment

Before moving onto this question document, please ensure you have read over the related
assessment information prior to completing certain questions in this question document. To
find the assessment information, please go back to ABKA350 and look at the OVERVIEW:

You can complete this assessment while waiting for your grading on the Full Year Case Study.

Your Looking Forward Case Study will be based on Castello’s Restaurant & Bar.

Your job is to complete the Looking Forward Case Study of the assessment. At each
question, we require you to complete the related steps covered in the Assessment
Information Area. By the end of this assessment, you should have completed a Brief
Management Report with Extracts.

In this assessment, you must complete all 6 questions below. Once you have saved your
work click on the Assessment submission link within this course and upload all required
assessment files to your tutor for marking.

Files to Upload:

 This Question Paper

 Word Document for the Brief Management Report

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Looking Forward Case Study: Castello’s

Restaurant & Bar
Question 1: Horizontal Analysis
Using the Horizontal Analysis Reports, comment on the following variances. In your
comment, you must go over the results and state any possible causes. Remember to use
causes that will apply to the business and think like a management accountant.

Horizontal Analysis

Gross Profit
Horizontal Analysis shows a decrease in Gross Profit over the previous year.
Possible Causes:
Increased cost of ingredients or raw materials: One possible cause for a decrease in Gross
Profit could be a rise in the cost of goods sold (COGS). This could be due to inflation
affecting the prices of ingredients or the sourcing of higher-priced specialty items.
Pricing strategy: A change in pricing strategy, such as offering discounts or promotions,
could lead to a lower Gross Profit margin.
Changes in menu items: The introduction of lower-margin menu items or changes in the
menu mix can also affect Gross Profit.
Expenses with the Highest change in dollar terms
Horizontal Analysis identifies certain expenses with a significant increase in dollar terms.
Possible Causes:
Increased marketing and advertising expenses: Higher marketing spend might have been
necessary to attract and retain customers in a competitive market or to launch new
marketing campaigns.
Employee-related costs: A surge in labor costs could be due to hiring more staff, giving
raises, or providing additional benefits.
Utility costs: A spike in utility costs could result from increased energy prices or greater
consumption of resources.
Rent or lease expenses: A change in the lease agreement, such as a rent increase or
relocation to a larger space, could lead to higher rent expenses.
Change in Total Assets
Horizontal Analysis reveals an increase in Total Assets.
Possible Causes:

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Investment in capital assets: The business might have purchased new equipment,
furniture, or renovated the restaurant, leading to an increase in Total Assets.
Accumulated profits: Continued profitability over the years could result in an increase in
retained earnings and, consequently, Total Assets.
Expansion or acquisition: If the restaurant expanded its operations or acquired other
businesses, it would lead to an increase in assets.
Change in Total Liabilities
Horizontal Analysis indicates a rise in Total Liabilities.
Possible Causes:
Borrowings: The business might have taken on additional loans or credit lines to fund
growth, such as expanding the restaurant or upgrading facilities.
Increase in trade payables: The increase in accounts payable could be due to the
restaurant sourcing more supplies on credit or negotiating extended payment terms.
Lease liabilities: A change in lease agreements, such as entering into long-term leases,
could result in higher lease-related liabilities.

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Question 2: Ratio Analysis

Using the Ratio Analysis Reports, comment on the following Ratios. In your comment, you
must go over the results and state any possible causes. Remember to use causes that will
apply to the business.

Ratio Analysis

Gross Profit Margin %

Ratio Analysis shows the Gross Profit Margin %, which indicates the percentage of each
sales dollar retained as gross profit.
Possible Causes:
Cost of Goods Sold (COGS): An increase in the cost of ingredients, food, or beverages
could lower the Gross Profit Margin. This could be due to inflation or a change in
suppliers.
Pricing Strategy: A decrease in menu prices or an increase in discounts and promotions
may lead to a lower Gross Profit Margin.
Menu Mix: If the restaurant introduced lower-margin items that are popular with
customers, it could lower the overall Gross Profit Margin.
Expenses to Sales %
Ratio Analysis highlights the Expenses to Sales %, which represents the portion of total
sales revenue spent on expenses.
Possible Causes:
Increased Operating Expenses: A rise in operating expenses, such as labor costs, rent, and
utilities, could lead to a higher Expenses to Sales %. This might result from hiring more
staff, rent increases, or higher energy costs.
Marketing Expenses: If the restaurant invested more in marketing and advertising
campaigns to attract customers, it could increase the ratio.
Inefficient Operations: Inefficiencies in managing costs, waste, or inventory could lead to
higher expenses relative to sales.
Current Ratio
Ratio Analysis provides the Current Ratio, which measures the restaurant's ability to cover
its short-term liabilities with short-term assets.
Possible Causes:
Liquidity Management: An increase in cash and cash equivalents or accounts receivable
could improve the Current Ratio. Conversely, a decrease in these assets could lower the
ratio.
Short-Term Debt: If the business took on short-term loans or credit lines, it might have
increased its short-term liabilities, affecting the Current Ratio.

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Inventory Levels: Higher inventory levels can tie up assets and reduce the Current Ratio.
Liquid Ratio
The Liquid Ratio, similar to the Current Ratio, assesses liquidity but excludes inventory
from current assets.
Possible Causes:
Decrease in Inventory: If the restaurant managed to reduce its inventory levels, it would
positively impact the Liquid Ratio.
Cash Management: An increase in cash or highly liquid assets like marketable securities
could improve the Liquid Ratio.
Reduction in Short-Term Debt: Paying off short-term debts or renegotiating terms could
enhance the Liquid Ratio.

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Question 3: Budget Analysis – Part One

Using the Budget vs Actual Analysis Reports, comment on the following variances. In your
comment, you must go over the results and state any possible causes. You may find using a
mixture of Horizontal Analysis and Ratio Analysis may help. Remember to use causes that
will apply to the business.

Budget vs Actual Analysis

Gross Profit
Budget vs. Actual Analysis reveals a variance in Gross Profit.
Possible Causes:
Cost Control: The Gross Profit variance could be due to higher-than-expected costs
related to ingredients, labor, or overhead expenses. This could result from inflation or
fluctuations in supplier pricing.
Pricing Strategy: A difference in pricing strategy, such as offering discounts or
promotions, could impact Gross Profit.
Sales Mix: If there's a shift in the mix of high-margin and low-margin menu items, it could
affect Gross Profit.
Pick minimum of TWO Expenses to analyse with Highest Dollar Change
Budgeted and actual amounts
Possible Causes:
Labor Costs: Increased staffing levels, overtime, or wage hikes could lead to higher labor
costs.
Rent or Lease Expenses: Changes in lease agreements, such as rent increases or
relocation, may result in increased rent expenses.
Utility Costs: Variations in energy prices, increased usage, or inefficiencies in energy
management could affect utility expenses.
Expense with Highest Percentage Change
Budget vs. Actual Analysis highlights the expense with the highest percentage change.
Possible Causes:
Marketing and Advertising Expenses: A substantial percentage change in marketing
expenses may indicate increased efforts to attract and retain customers through
advertising campaigns.
Maintenance and Repairs: A significant percentage change in maintenance and repair
expenses may be due to equipment breakdowns or the need for extensive repairs during
the period.

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Question 4: Budget Analysis – Part Two

Using the Budget for December/January, comment on the Gross Profit and Expenses. In your
comment, you must go over the results and state any assumptions that have caused
negative results. You may find using a mixture of Horizontal Analysis and Ratio Analysis may
help.

Dec/Jan Budget Analysis

Gross Profit
The December/January Budget Analysis shows a Gross Profit figure.
Assumptions:
Pricing Strategy: The budget might have assumed a specific pricing strategy, but if actual
pricing is lower or less effective, it could lead to a lower Gross Profit.
Sales Volume: The budget might have projected a certain level of sales, but if customer
demand is lower during these months, it could impact Gross Profit.

Pick minimum of TWO Expenses to analyse:

Let's analyze two specific expenses from the budget:

1) Labor Costs:
Assumption: The budget may have assumed a certain level of staffing and labor costs.
However, if actual staffing levels exceed the budgeted amount, it could lead to higher
labor costs.
Recommendation: To address this assumption, consider reviewing staffing needs based
on historical data and seasonal variations. Implement efficient scheduling and monitor
labor costs regularly to stay within budgeted levels.

2) Marketing and Advertising Expenses:

Assumption: The budget may have allocated a specific amount for marketing and
advertising campaigns. If the expected return on investment (ROI) from these expenses is
not achieved, it could result in negative budget variances.
Recommendation: To improve the budget, reassess marketing and advertising strategies
to ensure they align with revenue goals. Monitor the effectiveness of campaigns, and
consider reallocating resources to more successful marketing channels.

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If there are negative results, add a few recommendations to address any assumptions that
can be done to improve the budget if it was redone.

Dec/Jan Budget Analysis

Recommendations
Overall Recommendations for Budget Improvement:

Continuous Monitoring: Regularly monitor actual performance against the budget and
make adjustments as needed throughout the period.
Flexibility: Ensure that the budget allows for flexibility to adapt to changing market
conditions or unexpected expenses.
Benchmarking: Compare budgeted figures with industry benchmarks and competitors to
identify areas for improvement.
Cost Control: Implement cost-control measures, such as efficient inventory management,
to reduce expenses without compromising quality.

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Question 5: 2 Year Forecast

Using the 2-Year Forecast, comment on the following areas. In your comment, you must go
over the results and state any assumptions that may have caused negative results. You may
find using a mixture of Horizontal Analysis AND Ratio Analysis may help.

2 Year Forecast Analysis

Gross Profit Margin %

The 2-Year Forecast Analysis shows the Gross Profit Margin %.
Assumptions:
Cost Projections: Negative results in the Gross Profit Margin could be due to overly
optimistic assumptions about controlling costs, such as food and labor expenses. If these
costs rise more than expected, it can impact the Gross Profit Margin.
Pricing Strategy: The forecast may assume stable pricing, but if there are changes in
pricing strategy or increased competition, it can affect margins.
Recommendation: To improve the forecast, ensure that cost projections are realistic and
factor in potential cost increases. Continuously monitor the competitive landscape and
adjust pricing strategies accordingly.
Expenses to Sales %
The 2-Year Forecast Analysis includes the Expenses to Sales %.
Assumptions:
Cost Management: Negative results here may be due to assumptions that do not account
for the potential volatility in operating expenses. These assumptions may not accurately
reflect the cost control measures taken by the restaurant.
Sales Projections: If sales projections are overly optimistic, it can result in a higher
expense-to-sales ratio.
Recommendation: Reevaluate expense projections with a focus on cost containment
strategies. Be conservative in sales projections and consider various scenarios, such as
slower growth or reduced demand.
Current Ratio
The Current Ratio in the 2-Year Forecast measures the restaurant's ability to cover short-
term liabilities with short-term assets.
Assumptions:
Cash Flow Projections: Negative results may arise from overly optimistic assumptions
about cash flow. If cash flow is not as strong as projected, it can affect the Current Ratio.
Short-Term Debt: Assumptions about short-term debt levels may not align with the actual
financial decisions made.
Recommendation: Improve cash flow forecasting accuracy by considering various

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scenarios and incorporating historical data. Manage short-term debt levels prudently to
maintain a healthy Current Ratio.
Liquid Ratio
The Liquid Ratio, similar to the Current Ratio, assesses liquidity but excludes inventory
from current assets.
Assumptions:
Inventory Management: Negative results in the Liquid Ratio may stem from assumptions
about inventory turnover that do not align with actual inventory management practices.
Asset Liquidity: Assumptions about the liquidity of current assets may not reflect the
reality of converting them into cash.
Recommendation: Enhance inventory management to reduce inventory levels and
improve asset liquidity. Ensure that assumptions about the liquidity of current assets are
grounded in historical data and operational practices.

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If there are negative results, add a few recommendations to address any assumptions that
can be done to improve the forecast if it was redone.

2 Year Forecast Analysis

Recommendations
Scenario Analysis: Conduct scenario analysis to account for different economic conditions
and their impact on financial outcomes.
Continuous Monitoring: Continuously monitor actual financial performance against the
forecast and make necessary adjustments.
Risk Assessment: Identify and assess potential risks that could affect assumptions and
financial outcomes.
Sensitivity Analysis: Perform sensitivity analysis to understand how changes in key
assumptions impact the forecast.

Question 6: Brief Management Report

After completing step 7, this question requires you to include the final copy of your
Brief Management Report as part of your assessment submission (in a separate word
document).

In this area, tutors will provide a few comments below based on what you have given. They
will be looking at presentation and how you have applied the above analysis.

Management Report Comments (Tutor Use Only)

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Tutor Comment:

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