An unexpected $10,000 increase in rent resulted in rent coming over budget by $10,000.
Rent was expected to amount to $50,000; however, actual costs amounted to $60,000, as directly imposed by corporate headquarters.
Recommendations
The budgeted amount for the next fiscal year's rent expense should be $60,000, which includes the current rent increase without any envisioning of another.
Supplies
Analysis
Budgeted expenses for supplies amounted to $18,000, 2% of total sales ($900,000 X.02). Actual expenses came to $14,000, $4,000 under budget (1.75% of sales). Supplies are purchased locally. This is a variable expense dependent upon sales.
Recommendations
The supply budget should still be 2% of total budgeted sales in order to compensate for cost increases in supplies.
In addition to the 2% of total sales, an additional $5,000 should be budgeted to fund the customer mailing list campaign to purchase envelopes, labels, and postage, and to pay for printing of coupons for direct and indirect mailing. More return customers mean more sales! The total supplies budget for next year should be $23,000 ($900,000 X.02 + $5,000).
Corporate Overhead
1 location. This is a fixed expense imposed on the location by the corporate Pappadeax office. Expenses this year were largely over the projected budget of $90,000. Actual corporate overhead costs amounted to $120,000 - over budget by $30,000. Increased expenses are due to a new computer system installed at corporate headquarters.
Recommendations
In order to account for this year's unknown overhead hike, the next year's budget should include the normal 10% rate ($900,000/90,000) + another $10,000. Since the next fiscal year's sales budget is $900,000 once again, the budgeted amount for corporate overhead should be $100,000 (10% of $900,000 + $10,000).
Recommendations for Pappadeaux Restuarants' system of accounting
In order to concentrate on long-term customer satisfaction, efforts need to be focused on quality in every aspect of the business. The following recommended annual budget presents a larger actual net income than this year's $32,000; however, it is more realistic than $102,000 for the location as it begins its second year of business in the San Diego area.
Recommended sales for the year ending April…
