Exercise on Budgeting To be turned in on May 24, 2022 Following information relates to the...
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Exercise on Budgeting To be turned in on May 24, 2022 Following information relates to the last operating year of HISAR Hotel who is still working on its budget for the year 2022. DEPARTMENTS Rooms Food & Beverage Other Operated Departments Total UNDISTRIBUTED OPERATING EXPENSES Administrative and General Advertising and Promotion Heat, Light and Power Repairs and Maintenance INCOME BEFORE FIXED CHARGES FIXED CHARGES Insurance Interest Expense Depreciation INCOME BEFORE TAX Hisar Hotel Departmental Income Statement For the Year ending Dec.31, 2021 TAX (30%) NET INCOME SALES REVENUE 759.200 728.200 76.500 1.563.900 COST OF SALES 0 240.300 34.400 274.700 DEPT'AL PAYROLL 160.900 291.280 27.540 479.720 DEPT'AL EXPENSES 84.310 65.530 5.350 155.190 125.690 47.130 62.840 94.270 23.000 95.000 110.000 DEPT'AL INCOME 513.990 131.090 9.210 654.290 329.930 324.360 228.000 96.360 28.908 67.452 HİSAR Hotel has 40 rooms and it has operated at 80% occupancy in the year 2021 and its aver- age room rate has been 65 TL. The predictions of the management team for the year 2022 were as follows: • Occupancy is expected to fall to 70% and management plans to increase the average room rate by 15% in response to falling occupancy. The revenues of F&B and other oper- ated departments are expected to increase by 10%. While payroll costs will be kept con- stant for the next year, departmental expenses and costs of sales are expected to increase by 15% over the coming year. • In undistributed operating expenses, administrative and general expenses are expected to increase by 5%, while advertising and promotion increase is budgeted as 10%. Further- more, heat, light, energy and maintenance costs are expected to increase by 20%. • Forecasts on fixed charges are as follows for 2021: Insurance 28,000 TL.; Interest expense 105,000 TL and Depreciation 110,000 TL. Required: 1. Evaluate the past profitability of HISAR Hotel and its departments in the year 2021. Con- sider the additional information in your evaluations: Total Assets were 2,250,000 TL and total equity was 1,500,000 TL in 2021. In making your evaluations of profitability, use various appropriate analysis ratios and comment on the existing level of profitabil- ity in the year 2021. 2. Given the forecasts and predictions of the management team, prepare the budgeted in- come statement of the management for the year 2022. Evaluate the expected profita- bility of HISAR Hotel according to the plans of management. In evaluating profitability for the budgeted 2022 results, use a 10% increase in total assets in 2022 and the same relation between the size of total assets and equity. 3. Suggest changes in plans and policies, so that the future of HISAR Hotel improves over the budget foreseen by the management team. Including your own forecasts, plans and estimations, construct your own budgeted income statement for HISAR Hotel for the year 2022. 4. Depending on your own budget, explain to the management team your forecasts and plans and how to improve the profitability of HISAR over what they have planned for. Exercise on Budgeting To be turned in on May 24, 2022 Following information relates to the last operating year of HISAR Hotel who is still working on its budget for the year 2022. DEPARTMENTS Rooms Food & Beverage Other Operated Departments Total UNDISTRIBUTED OPERATING EXPENSES Administrative and General Advertising and Promotion Heat, Light and Power Repairs and Maintenance INCOME BEFORE FIXED CHARGES FIXED CHARGES Insurance Interest Expense Depreciation INCOME BEFORE TAX Hisar Hotel Departmental Income Statement For the Year ending Dec.31, 2021 TAX (30%) NET INCOME SALES REVENUE 759.200 728.200 76.500 1.563.900 COST OF SALES 0 240.300 34.400 274.700 DEPT'AL PAYROLL 160.900 291.280 27.540 479.720 DEPT'AL EXPENSES 84.310 65.530 5.350 155.190 125.690 47.130 62.840 94.270 23.000 95.000 110.000 DEPT'AL INCOME 513.990 131.090 9.210 654.290 329.930 324.360 228.000 96.360 28.908 67.452 HİSAR Hotel has 40 rooms and it has operated at 80% occupancy in the year 2021 and its aver- age room rate has been 65 TL. The predictions of the management team for the year 2022 were as follows: • Occupancy is expected to fall to 70% and management plans to increase the average room rate by 15% in response to falling occupancy. The revenues of F&B and other oper- ated departments are expected to increase by 10%. While payroll costs will be kept con- stant for the next year, departmental expenses and costs of sales are expected to increase by 15% over the coming year. • In undistributed operating expenses, administrative and general expenses are expected to increase by 5%, while advertising and promotion increase is budgeted as 10%. Further- more, heat, light, energy and maintenance costs are expected to increase by 20%. • Forecasts on fixed charges are as follows for 2021: Insurance 28,000 TL.; Interest expense 105,000 TL and Depreciation 110,000 TL. Required: 1. Evaluate the past profitability of HISAR Hotel and its departments in the year 2021. Con- sider the additional information in your evaluations: Total Assets were 2,250,000 TL and total equity was 1,500,000 TL in 2021. In making your evaluations of profitability, use various appropriate analysis ratios and comment on the existing level of profitabil- ity in the year 2021. 2. Given the forecasts and predictions of the management team, prepare the budgeted in- come statement of the management for the year 2022. Evaluate the expected profita- bility of HISAR Hotel according to the plans of management. In evaluating profitability for the budgeted 2022 results, use a 10% increase in total assets in 2022 and the same relation between the size of total assets and equity. 3. Suggest changes in plans and policies, so that the future of HISAR Hotel improves over the budget foreseen by the management team. Including your own forecasts, plans and estimations, construct your own budgeted income statement for HISAR Hotel for the year 2022. 4. Depending on your own budget, explain to the management team your forecasts and plans and how to improve the profitability of HISAR over what they have planned for.
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Stepbystep Explanation A budget plans for and tracks income and expenses over a specific time period ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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