Budgeting for Business

1. Analyse the management accounting techniques related to a range of
business situations and managerial decision making.
2. Prepare a budget to reflect a given business scenario.
3. Demonstrate the ability to assess the financial and non-financial aspects
of divisional and organisational performance.

Pink Tulips is a firm that serves the UK market and focuses on three important
areas of hospitality: Travel and Tourism; Food Services; Banquet and Events.
The company employs around 4100 people nationally and is committed to
ensuring a reliable supply of its services where and when they are needed. The
service industry is becoming more competitive and development cost are rising.
Cruise ships, airlines, agencies & tour operations including luxuries services
such as luxury brand managements, sales and marketing for international
brands and contract often provides additional work for the travel and tourisms
division of Pink Tulips.
Although the marketing department shows strong demand for the service that
Pink Tulips is providing (in 2019, the actual sales volume is approximately 12%
more than budget), the financial department shows the following information for
the period ending 30th June 2020 (In relation to last periods Accounting Profit).

Budget Actual Difference
(in millions) (in millions) (in millions)
Revenue £ 9.1 £ 9.4 -£ 0.3
Cost of sales 6.6 7.2 -£ 0.6
Gross margin £ 2.5 £ 2.2 +£ 0.3
Fixed expenditure 1.1 1.2 -£ 0.1
Operating profit £ 1.4 £ 1.0 +£ 0.4

Based on the information provided by the Financial Department, the directors
think they should do more to try and improve their profits in the next year and
should expand the business to boost up more revenues and cut cost of sales.
Imaging you are the Budget Analyst (Manager) for the company. You have
recently been invited to attend the company board meeting where the directors
who are experienced businessmen discussed their plans to expand the level of
business activity for the company to include other sectors of the service
industry. The CEO believes that owning different sectors of the hospitality
industry will offer Pink Tulips a chance to rake in more rewards in the long haul
and improve the financial appearance of the company.
The following ideas are put forward at the board meeting and the expansion will
involve one or two of the following:
• Bed & Breakfast
• Campgrounds and Convention Centres
• Restaurant & Bars
• Takeaway and Fast food
• Sports and Gaming
• Nightclubs and bars
Academic Year 2019/20 Page 3 of 5
Required:
The directors have asked you to draft a report to be addressed to the company
board of directors on the proposal and prospects of Pink Tulips that will set out
the following:
A. Discuss the information provided by the Financial Department and
assess the importance of flexible budget and variance analysis for Pink
Tulips to carry on the budget and decisions making process for the
coming year.
B. Prepare an operating budget for the next 12 months that relate to the
company’s expected activities and objectives for 2020-2021.
C. Your report should include an assessment of both the financial and nonfinancial implication of the proposal for expansion and the implication on
the company performance using appropriate management accounting
techniques of your choice.
Notes:
I. Assume that a year consists of 12 months of equal lengths
II. Assume the company plans to starts the expansion on 1 July 2019
III. Ignore taxation
In your report, identify and include reasonable estimate for any items you
include in the operating budget, for example, prices charged, advertising and
promotion used and related cost. You can use various sources (e.g. suppliers’
website) to obtain realistic figures for the items in the operating budget.