CHAPTER 9 Budgeting 411Required
a. Explain what ‘budgetary slack’ is and why it might be a problem.
b. What advice would you offer to Alette regarding her courses of action with respect to
‘budgetary slack’?9.39 Affect on budgets of planned sales increase LO4
David Smith is a marketing manager for a chain of stores specialising in electric tools for home
renovators. David’s department is preparing a sales budget for the coming year, and he has issued
a memo to his staff that includes a requirement of an annual increase in sales of 15 per cent for
all stores. This sales increase applies to all products sold. What budget(s) would be affected by the
estimated increase in sales?9.40 Affect on entity performance from cost cutting LO4, 6, 7
Ron Howard is the operational manager for Tours R Us. Ron’s bonus is dependent upon the reduc-
tion of his department’s operating expense budget by 10 per cent in the coming year. One initiative
he has taken is to cut staff training expenditure. What implications could this decision have for
Tours R Us as a whole?9.41 Use of budgeting techniques to assist strategic change LO5, 6
Refer to the discussion at the beginning of the chapter regarding the ABC Shop closures.
Discuss how budgeting techniques were used by the ABC’s financial accountant to assist in
making the decision to rationalise operations.9.42 Affect on cash budget of different loan repayment options LO5
Mandy Dahl, the accountant for Crane Distributors, is currently preparing the budget for the
coming year. One of the agenda items for next week’s finance meeting is consideration of whether
an outstanding loan of $500 000 should be refinanced, paid out in a lump sum, or extended by
reducing the repayments. Discuss how the cash budget would change with each of the above
options.9.43 Understanding variance between budget estimates and actual performance LO6
Spreadsheet Service’s management expressed surprise that the budgeted profit was achieved des-
pite actual sales being under by $50 000. Give reasons why the actual profit was able to match the
budgeted profit.9.44 Affect on budget of changing occupancy rates LO4
Dorquay Hotel has twenty rooms available for rent. During the month of December its average
room rate is expected to be $150 and its room occupancy 85 per cent. Due to the holiday season,
the room rate is to be increased by 10 per cent, and the occupancy is expected to be 95 per cent.
In February, no further room rate increase is planned and occupancy is expected to be 90 per cent.
Required
a. Calculate the budgeted room revenue for each of the three months.
b. Discuss how the management of Dorquay Hotel would have determined the occupancy rate.9.45 Budget for a restaurant LO4, 6
Dorquay Hotel has a dining room which has the capacity to seat 50 guests. It is opened for break-
fast and lunch seven days a week. During January 2016, management has forecast the seat turnover
for breakfast to be 2.5 times and for lunch 2 times, with the average bill to be $20 for breakfast
and $40 for lunch. Beverage revenue is usually 10 per cent of the breakfast revenue and 25 per
cent of the lunch revenue.
Required
a. Calculate budgeted total revenue of food and beverage for January 2016.
b. What actions could the dining room manager take to increase beverage sales?9.46 Review of budget estimates LO6
As a consequence of the global financial crisis many airlines have cut back services to various
locations around Australia. Identify other entities or groups of entities that might be found to
review their budget targets during the budget period due to this reduced service by airlines.