Preparation Of Sales And Operating Expenses Budgets

Preparation of sales and operating expenses budgets and budgeted income

Task: Prepare sales budgets, operating expenses budgets, and budgeted income statements based on provided details for Lakeside Resorts for the year 2020. Consider the expected changes in revenue and costs, including sales growth projections, salary increases, utility and fuel cost changes, and expenses related to marketing and administration. Use the 2019 financial data as a baseline and incorporate the projected variations to develop accurate budgets that reflect the anticipated financial position of Lakeside Resorts in 2020.

Paper For Above instruction

Introduction

Budgeting plays an essential role in financial planning and control, especially within the hospitality industry, where fluctuating demand, operational costs, and strategic initiatives directly influence profitability. Lakeside Resorts, an established accommodation provider with locations in Melbourne and Sydney, relies heavily on accurate budgets to inform decision-making and strategic planning for 2020. This paper focuses on preparing detailed sales budgets, operating expense budgets, and a forecasted income statement for Lakeside Resorts for the year 2020, considering historical data and projected cost and revenue changes.

Sales Budget

The starting point in the budgeting process involves projecting the sales revenues for both resorts, adjusted for expected growth in 2020. Based on the 2019 quarterly sales data, total sales were $7,400,000, with Melbourne contributing the majority of revenue.

The marketing analysis indicates a 30% increase in Melbourne sales and a modest 3% increase in Sydney sales for 2020. Using these growth estimates, the sales forecast for 2020 is calculated as follows:

• Melbourne:
• Q1 (March): $1,000,000 x 1.30 = $1,300,000
• Q2 (June): $900,000 x 1.30 = $1,170,000
• Q3 (September): $800,000 x 1.30 = $1,040,000
• Q4 (December): $1,500,000 x 1.30 = $1,950,000
• Total Melbourne sales for 2020: $1,300,000 + $1,170,000 + $1,040,000 + $1,950,000 = $5,460,000
• Sydney:
• Q1: $800,000 x 1.03 = $824,000
• Q2: $600,000 x 1.03 = $618,000
• Q3: $700,000 x 1.03 = $721,000
• Q4: $1,100,000 x 1.03 = $1,133,000
• Total Sydney sales for 2020: $824,000 + $618,000 + $721,000 + $1,133,000 = $3,296,000

The total projected sales revenue for 2020 across both locations will be $8,756,000. This projection considers the market trend analysis and anticipated growth percentages.

Operating Expenses Budget

Operating expenses are expected to increase due to inflation, strategic initiatives, and operational needs. Starting with the 2019 expenses, adjustments incorporate the expected percentage increases and specific cost changes.

Key expense categories and their adjustments include:

• General Administrative Expenses: Increased by 1% from $800,000 to $808,000.
• Wages: Total wages for 2019 were $1,400,000, including salaries for various staff members. An anticipated 4% increase due to the enterprise bargaining agreement results in:
  • Wages in 2020 = $1,400,000 x 1.04 = $1,456,000.
• Marketing Expenses: Expected to rise by 25%, from $100,000 to $125,000.
• Sales Commission: Will increase from 5% to 5.5% of sales revenue. Calculated as:
  • 2020 Sales x 5.5% = Commission expenses.
  • For total sales of $8,756,000:
  • Commission = $8,756,000 x 0.055 = $481,580.
• Utilities (Gas and Electricity): Utilities increased by 2%. Gas was previously $10,000, and electricity $30,000, so new expenses are:
  • Gas: $10,000 x 1.02 = $10,200
  • Electricity: $30,000 x 1.02 = $30,600
• Vehicle-Related Expenses: Including fuel and maintenance, total vehicle expenses were $2,000,000 with fuel representing half of that ($1,000,000). Fuel costs are projected to increase by 1%, so:
  • Fuel: $1,000,000 x 1.01 = $1,010,000
  • Other vehicle expenses remain constant at $1,000,000, so total vehicle expenses in 2020: $1,010,000 + $1,000,000 = $2,010,000.
• Depreciation and Loan Interest: Remain unchanged at $800,000 and $50,000 respectively.

Summing these estimates yields the total operating expenses for 2020.

Budgeted Income Statement

Combining the projected sales revenue and total expenses, the budgeted income statement for 2020 is constructed. Revenue is projected at $8,756,000, while total operating expenses are estimated as follows:

• Administrative expenses: $808,000
• Wages: $1,456,000
• Marketing expenses: $125,000
• Sales commissions: $481,580
• Utilities: $10,200 (gas) + $30,600 (electricity) = $40,800
• Vehicle expenses: $2,010,000
• Depreciation: $800,000
• Loan interest: $50,000

Total operating expenses = $808,000 + $1,456,000 + $125,000 + $481,580 + $40,800 + $2,010,000 + $800,000 + $50,000 = $5,811,380

Net profit before taxes = Total revenue - Total operating expenses = $8,756,000 - $5,811,380 = $2,944,620

This comprehensive budgeting process enables Lakeside Resorts to forecast its financial position in 2020 accurately, facilitating better planning and performance evaluation.

Conclusion

Appropriate budgeting is vital for strategic management in the hospitality industry. By projecting sales, estimating aligned operational costs, and preparing a detailed income statement, Lakeside Resorts can navigate anticipated market conditions effectively. The careful consideration of growth rates, cost increases, and strategic expenses underscores the importance of data-driven planning to ensure profitability and sustainable growth in competitive markets.

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