BSBFIM601 MANAGE FINANCES

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: $20 labour
$5 supplies (bathroom, etc.)
 Anticipated wage rise of 2.5%

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

Rate / formula Total $ reduce room
rate by 10%
+ wage rise
Budgeted nights 8,213 8,213
booked
Tariff revenues 125*365*75%*30=985,500*10%- 1,026,563 886,950

Less variable costs

Room servicing 22.5*365*75%*30 184,781 193,815

labour
Room servicing 5*365*75%*30 41,063 41,063
supplies
Total variable costs 225,844 234,878

Contribution margin 1,026,563-225844=800,719 800,719 652,072

886,950-234,878=652,072

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Option 1 – increase room rate + wage rise Option 2 –

Rate / formula Total $ reduce room
rate by 10%
+ wage rise
Less fixed costs

Admin/reception 60,000*3+12.5%=202,500 207,563 207,563

salaries
Wage rise 202,500*2.5%+202,500
Grounds & 50,00x2+12.5%=112,500 112,500 112,500
maintenance salaries
General manager 85,000+12.5% 95,625 95,625
salary
Utilities 90,000 90,000

Depreciation 140,000 140,000

Advertising 60,000 60,000

Total fixed costs 705.688 705,688

Net profit before tax 705,688-800,719 95,031 -53,616

Less estimated tax 95,031*30% 28,509 -16,085

expense (30%)
Net profit after tax 95,031-28,509 66,522 -37,616

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Task 3
You soon realise that occupancy rates are highly seasonal, with demand peaking during school
holidays and long weekends. The annual occupancy rate recorded in your reports is actually
just the average of the four quarterly occupancy rates.

An investigation of past records reveals the following pattern.

Max capacity per annum (nights booked) 10,950

Nights booked at 75% occupancy rate overall 8,213
Max capacity per quarter 2,738
Occ. % No. nights
Spring (Sept to Nov) 80 2,190
Summer (Dec to Feb) 100 2,738
Autumn (March to May) 75 2,053
Winter (June to August) 45 1,232

8,213

Spring Summer Autumn Winter Annual

quarter quarter quarter quarter total
$ $ $ $ $
Budgeted nights booked 2,190 2,738 2,053 1,232 8,213
Tariff revenues 262,800 328,560 246,360 147840 985,560
Less variable costs
Room servicing labour 49,275 61,605 46,193 27,720 184,793
Room servicing supplies 10,950 13,690 10,265 6,160 41,065
Total variable costs 60,225 75,295 56,458 33,880 225,858
Gross profit 202,575 253,265 189,902 113,960 759,702
Less fixed costs
Admin/reception salaries 50,625 50,625 50,625 50,625 202,500
Grounds & maintenance
25,000 25,000 25,000 25,000 100,000
salaries
General manager salary 21,250 21,250 21,250 21,250 85,000
Utilities 22,500 22,500 22,500 22,500 90,000
Depreciation 35,000 35,000 35,000 35,000 140,000
Advertising 15,000 15,000 15,000 15,000 60,000
Total fixed costs 169,375 169,375 169,375 169,375 677,500
Net profit / (loss) before
33,200 83,870 20,527 55,415 82,202
tax

Note: The annual totals for each entry should reflect the results for Option 1 in Task 2. Totals
may vary by one or two dollars due to rounding processes when calculating quarterly figures.

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BSBFIM601 MANAGE FINANCES

Task 4
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 147840
Less variable costs
Room servicing labour 27,720
Room servicing supplies $6,160
Total variable costs 33,880
Gross profit 113,960
Less fixed costs
Admin/reception salaries 50,625
Grounds & maintenance salaries 25,000
General manager salary 21,250
Utilities 22,500
Depreciation of PPE 35,000
Advertising 15,000
Total fixed costs 169,375
Net profit / (loss) before tax -55,415

Autumn Winter Est cash receipts

quarter quarter winter quarter
$ $
Receipts from previous quarter’s 246,360 36,954
customers
Receipts from current quarter’s 147,840 147,840
customers
Total estimated cash inflows 184,794
Estimated cash outflows
Room servicing labour 27,720

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Room servicing supplies

Admin/reception salaries 50,625
Grounds & maintenance salaries 25,000
General manager salary 21,250
Utilities 22,500
Advertising 35,000
Payment of net GST from autumn 15,000
quarter * (see below)
Total estimated cash outflows 197,095
Net surplus / deficit -12,301
Cash balance at start of winter quarter 5000
Cash balance at end of winter quarter -7,301

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

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