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Accounting For Decision Making: Budgeting In Ceria Restaurant

4153 words - 17 pages

INTRODUCTIONCompanies that win big today play by different rules. Somehow, they still have to keep score on whether they're building for future growth or living on past accomplishments. What is particularly interesting about companies that change the game is that they often find new ways to measure their performance.There are two types of control, namely budgetary and financial. The following case that we are about to discussed concentrates on budgetary control only. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as:"The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison ...view middle of the document...

The case study will provide us an indication and explanation of the importance of budgetary control in marketing as a key marketing control technique, the advantages and disadvantages of budgeting and also an appreciation of the uses of budgets.Ceria Holiday, which is situated in a tourist area in north Malaysia, operates guesthouses. The fee charged to Ceria's guests includes both accommodation and all meals. The management of Ceria applies strict financial control of its activities in consideration of the competitiveness of the industry and the seasonal nature of the business.In this particular case, the area that needs constant monitoring on the costs is the restaurant. The manager of the restaurant, Suria is given an annual budget at the beginning of each year. Each month she receives a performance statement (Table 1) with the following assumptions:* The budget has been calculated on the basis of 30-day calendar month with the costs of rent and depreciation being an apportionment of the fixed annual charge.* The budgeted catering wages assume that:- There is one member of the catering staff for every 40 guests staying at the complex;- The daily cost of a member of the catering staff is RM30* All other budgeted costs are variable costs based on the number of guest days.Table 1: Ceria Holiday RestaurantPerformance Statement for 30 September 2005Actual Budget VarianceNumber of guest days 11,160 9,600 1,560RM RM RMFood 20,500 20,160 (340)Cleaning materials 2,232 1,920 (312)Air condition, light and power 2,050 2,400 350Catering wages 8,400 7,200 (1,200)Rent rates, insurance and depreciation 1,860 1,800 (60)35,042 33,480 (1,562)(a) In your view, does the current practice of reporting performance measure (financial) efficiency of the restaurant manager?The current practice of reporting performance does not measure the efficiency of the restaurant manager. While budgets may be an essential part of any company activity to signal if anything is wrong, budgets can also be seen as pressure devices imposed by management, thus resulting in inaccurate record-keeping, erroneous in decision making and possibly will cause bad labor relations.Apparently, there are a few essential items missing in this particular performance statement that would have given the management an in-depth view of the efficiency of the restaurant manager. The items included in the budgetary were too brief and most balance sheet items were not included as well. Therefore, it is difficult for Ceria Holidays to actually detect and identify important traits as to whether or not the restaurant manager is efficient.Inaccuracy and failure in current reporting performance will result in departmental conflict due to disputes over resource allocations and departments blaming each other if targets are not attained. Waste may also arise as managers adopt the view, "we had better spend it or we will lose it".Besides, when it comes to the situation where responsibility versus controlling, where...

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