Rasmussen University FIN4489 Deliverable 2 – Managing Budget Variances Scenario You are a sales manager responsible for the midwestern U.S. division of a g

Rasmussen University FIN4489 Deliverable 2 – Managing Budget Variances Scenario
You are a sales manager responsible for the midwestern U.S. division of a g

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Rasmussen University FIN4489 Deliverable 2 – Managing Budget Variances Scenario
You are a sales manager responsible for the midwestern U.S. division of a grab and go style, limited-item restaurant chain that specializes in breakfast items, such as donuts and other bakery items, egg-based sandwiches, coffee, etc. Through the first three months of the fiscal year, the net sales revenue for the midwestern U.S. division has been 5% below budget combined across all items. Your supervisor, the head of sales for the entire U.S., has requested that you investigate the situation and make recommendations to prevent further revenue declines and increase sales revenue enough in the upcoming months to get back to the budgeted amount for the total year.
The business analyst supporting your sales team has prepared a set of budgets for review. The data includes the original master budget for the year and the sales figures for the completed quarter with variance amounts. The analyst has also provided the sales plan with mix information (i.e. price and quantity sales budgets along with variances for the quarter). The file also includes promotional metrics showing historical sales volume increases resulting from advertising and loyalty rewards.
Instructions
Write a memo summarizing your analysis of the variances to budget.

Describe at least two issues identified in your analysis;
Discuss at least two recommendations to prevent further declines in sales revenue and recover the unfavorable revenue variance from the first quarter;
Include a justification for your recommendations versus other possible options and describe the potential risks; and
Include supporting detail such as tables, calculations, or a revised forecast copied from Excel as appendices with the memo. Budget

Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Avg per Month

Sales Plan (All Midwest Division Locations) January February March April May June July August September October November December Total Year

Days of Sales (Excluding 2 holidays) 31 28 31 30 31 30 31 31 30 31 29 30 363

# of Locations in Division 20 20 20 20 20 20 20 20 20 20 20 20 20

Bakery Items – Units per Day per Location 200 200 200 180 180 180 160 160 180 180 200 200 185

Bakery Items – Average Sales Price $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50

Sandwich Items – Unit per Day per Location 150 150 150 130 130 130 100 100 130 130 180 180 138

Sandwich Items – Average Sales Price $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25

Beverage Items – Units per Day per Location 600 600 500 450 450 450 400 400 500 500 600 600 504

Beverage Items – Average Sales Price $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00

Average Units Sold per Customer Visit 1.90 1.90 1.70 1.52 1.52 1.52 1.32 1.32 1.62 1.62 1.96 1.96 1.66

Average Sales (Gross Revenue) per Visit $9.18 $9.18 $7.98 $7.15 $7.15 $7.15 $6.25 $6.25 $7.75 $7.75 $9.37 $9.37 $7.87

Returns and Allowances – % of Sales 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Average Monthly Visits per Customer 2 2 2 2 2 2 2 2 2 2 2 2 2

Average Monthly Visits per Loyalty Customer 6 6 6 6 6 6 6 6 6 6 6 6 6

# of Customers in Loyalty Program 2000 2000 2000 2100 2100 2100 2210 2210 2210 2320 2320 2320 2158

Loyalty Rewards – % of Discount 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

Advertising – Social Media Ads # per Month 20 20 20 20 15 15 15 15 20 20 20 20 18

Advertising – Social Media Ads Cost Per Ad $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $2,000.00 $2,000.00 $1,166.67

Advertising – Social Media Ads Volume Incr % 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%

Advertising – Mailer Ads # per Month 10 10 10 10 5 5 5 5 10 10 10 10 8

Advertising – Mailer Ads Cost Per Ad $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $4,000.00 $4,000.00 $3,166.67

Advertising – Mailer Ads Volume Incr % 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6% 6%

Midwest Sales Team Income Statement

Financial Statements in U.S. Dollars Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget

Revenue January February March April May June July August September October November December Total Year

Gross Sales 2,844,250 2,569,000 2,472,250 2,143,500 2,214,950 2,143,500 1,937,500 1,937,500 2,323,500 2,400,950 2,717,300 2,811,000 28,515,200

Less: Returns and Allowances 28,443 25,690 24,723 21,435 22,150 21,435 19,375 19,375 23,235 24,010 27,173 28,110 285,152

Less: Customer Loyalty Discounts 5,505 5,505 4,785 4,501 4,501 4,501 4,144 4,144 5,135 5,391 6,522 6,522 61,155

Net Sales 2,810,303 2,537,805 2,442,743 2,117,564 2,188,299 2,117,564 1,913,981 1,913,981 2,295,130 2,371,550 2,683,605 2,776,368 28,168,893

Expenses January February March April May June July August September October November December Total Year

Selling Expense – Advertising 50,000 50,000 50,000 50,000 30,000 30,000 30,000 30,000 50,000 50,000 80,000 80,000 580,000

Selling Expense – Marketing Firm 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 300,000

General Expense – Sales Team 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 1,440,000

Administrative Expense – Sales Team 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 360,000

Total Expenses 225,000 225,000 225,000 225,000 205,000 205,000 205,000 205,000 225,000 225,000 255,000 255,000 2,680,000

Net Income (Loss) – Sales Div Only 2,585,303 2,312,805 2,217,743 1,892,564 1,983,299 1,912,564 1,708,981 1,708,981 2,070,130 2,146,550 2,428,605 2,521,368 25,488,893

Q1 YTD w Variances

Actual Actual Actual Avg for Quarter Variance Variance Variance Positive values are favorable

Sales Plan (All Midwest Division Locations) January February March Quarter 1 January February March Negative values are unfavorable

Days of Sales (Excluding 2 holidays) 31 28 31 90 0 0 0

# of Locations in Division 20 20 20 20 0 0 0

Bakery Items – Units per Day per Location 181 202 190 191 (19) 2 (10)

Bakery Items – Average Sales Price $2.45 $2.40 $2.60 $2.48 ($0.05) ($0.10) $0.10

Sandwich Items – Unit per Day per Location 172 149 155 159 22 (1) 5

Sandwich Items – Average Sales Price $3.20 $3.22 $3.25 $3.22 ($0.05) ($0.03) $0.00

Beverage Items – Units per Day per Location 550 580 495 542 (50) (20) (5)

Beverage Items – Average Sales Price $5.90 $5.90 $5.90 $5.90 ($0.10) ($0.10) ($0.10) A decrease in the average sales price across all items in a category can indicate customers are purchasing smaller sizes and/or less expensive menu items

Average Units Sold per Customer Visit 1.81 1.86 1.68 1.78 (0.09) (0.04) (0.02)

Average Sales (Gross Revenue) per Visit $8.48 $8.77 $7.84 $8.36 ($0.70) ($0.40) ($0.14)

Returns and Allowances – % of Sales 1.5% 1.4% 1.4% 1.4% -0.5% -0.4% -0.4% The sales team receives information on returns and allowances because of the impact on sales revenue

Average Monthly Visits per Customer 2.0 2.0 2.0 2.0 0.0 0.0 0.0

Average Monthly Visits per Loyalty Customer 6.2 6.3 6.3 6.3 0.2 0.3 0.3 Historically, when customers convert to loyalty rewards, they increase their average # of visits in a month

# of Customers in Loyalty Program 1990 2005 2010 2002 (10) 5 10 Advertising to loyalty customers is done via email with no advertising fee expense — providing an email is a requirement for loyalty rewards enrollment

Loyalty Rewards – % of Discount 5.0% 5.0% 5.0% 5.0% 0.0% 0.0% 0.0%

Advertising – Social Media Ads # per Month 17 20 18 18 (3) 0 (2) Because the company has many competitors for quick breakfast foods, regular advertising is used for brand recognition and to maintain market share

Advertising – Social Media Ads Cost Per Ad $1,050.00 $1,050.00 $1,050.00 $1,050.00 ($50.00) ($50.00) ($50.00)

Advertising – Social Media Ads Volume Incr % 2.5% 2.8% 2.8% 2.7% -0.5% -0.2% -0.2%

Advertising – Mailer Ads # per Month 9 9 9 9 (1) (1) (1) Mailers directly target customers who live in a mile radius of shop locations which leads to their higher volume increase potential

Advertising – Mailer Ads Cost Per Ad $2,950.00 $2,950.00 $2,950.00 $2,950.00 $50.00 $50.00 $50.00

Advertising – Mailer Ads Volume Incr % 5.5% 5.8% 6.0% 5.8% -0.5% -0.2% 0.0%

Midwest Sales Team Income Statement

Financial Statements in U.S. Dollars Actual Actual Actual Actual Variance Variance Variance

Revenue January February March Quarter 1 January February March

Gross Sales 2,628,087 2,456,485 2,429,315 7,513,887 (216,163) (112,515) (42,935)

Less: Returns and Allowances 39,421 34,391 34,010 107,823 (10,979) (8,701) (9,288)

Less: Customer Loyalty Discounts 5,230 5,541 4,962 15,732 275 (36) (177)

Net Sales 2,583,436 2,416,553 2,390,343 7,390,332 (205,459) (103,779) (33,470)

-5%

Expenses January February March Quarter 1 January February March

Selling Expense – Advertising 44,400 47,550 45,450 137,400 5,600 2,450 4,550

Selling Expense – Marketing Firm 30,000 20,000 25,000 75,000 (5,000) 5,000 0

General Expense – Sales Team 120,000 120,000 120,000 360,000 0 0 0

Administrative Expense – Sales Team 30,000 30,000 30,000 90,000 0 0 0

Total Expenses 224,400 217,550 220,450 662,400 600 7,450 4,550

Net Income (Loss) – Sales Div Only 2,359,036 2,199,003 2,169,893 6,727,932 (206,059) (111,229) (38,020)

Revised Forecast

Use this template to create a revised forecast, if desired, as supporting detail for your recommendations Actual Actual Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Avg per Month

Sales Plan (All Midwest Division Locations) January February March April May June July August September October November December Total Year

Days of Sales (Excluding 2 holidays) 31 28 31 30 31 30 31 31 30 31 29 30 363

# of Locations in Division 20 20 20 20 20 20 20 20 20 20 20 20 20

Bakery Items – Units per Day per Location 181 202 190 180 180 180 160 160 180 180 200 200 183

Bakery Items – Average Sales Price $2.45 $2.40 $2.60 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50 $2.50

Sandwich Items – Unit per Day per Location 172 149 155 130 130 130 100 100 130 130 180 180 141

Sandwich Items – Average Sales Price $3.20 $3.22 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.24

Beverage Items – Units per Day per Location 550 580 495 450 450 450 400 400 500 500 600 600 498

Beverage Items – Average Sales Price $5.90 $5.90 $5.90 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $6.00 $5.98

Average Units Sold per Customer Visit 1.81 1.86 1.68 1.52 1.52 1.52 1.32 1.32 1.62 1.62 1.96 1.96 1.64

Average Sales (Gross Revenue) per Visit $8.48 $8.77 $7.84 $7.15 $7.15 $7.15 $6.25 $6.25 $7.75 $7.75 $9.37 $9.37 $7.77

Returns and Allowances – % of Sales 1.5% 1.4% 1.4% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.1%

Average Monthly Visits per Customer 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Average Monthly Visits per Loyalty Customer 6.2 6.3 6.3 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.1

# of Customers in Loyalty Program 1990 2005 2010 2100 2100 2100 2210 2210 2210 2320 2320 2320 2158

Loyalty Rewards – % of Discount 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

Advertising – Social Media Ads # per Month 17 20 18 20 15 15 15 15 20 20 20 20 18

Advertising – Social Media Ads Cost Per Ad $1,050.00 $1,050.00 $1,050.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $1,000.00 $2,000.00 $2,000.00 $1,179.17

Advertising – Social Media Ads Volume Incr % 2.5% 2.8% 2.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 2.9%

Advertising – Mailer Ads # per Month 9 9 9 10 5 5 5 5 10 10 10 10 8

Advertising – Mailer Ads Cost Per Ad $2,950.00 $2,950.00 $2,950.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $3,000.00 $4,000.00 $4,000.00 $3,154.17

Advertising – Mailer Ads Volume Incr % 5.5% 5.8% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 5.9%

Midwest Sales Team Income Statement

Financial Statements in U.S. Dollars Actual Actual Actual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Var. to Budget Var. %

Revenue January February March April May June July August September October November December Total Year Total Year Total Year

Gross Sales 2,628,087 2,456,485 2,429,315 2,143,500 2,214,950 2,143,500 1,937,500 1,937,500 2,323,500 2,400,950 2,717,300 2,811,000 28,143,587 (371,613) -1.3%

Less: Returns and Allowances 39,421 34,391 34,010 21,435 22,150 21,435 19,375 19,375 23,235 24,010 27,173 28,110 314,120 (28,968) -10.2%

Less: Customer Loyalty Discounts 5,230 5,541 4,962 4,501 4,501 4,501 4,144 4,144 5,135 5,391 6,522 6,522 61,093 63 0.1%

Net Sales 2,583,436 2,416,553 2,390,343 2,117,564 2,188,299 2,117,564 1,913,981 1,913,981 2,295,130 2,371,550 2,683,605 2,776,368 27,768,375 (342,708) -1.2%

Expenses January February March April May June July August September October November December Total Year Total Year Total Year

Selling Expense – Advertising 44,400 47,550 45,450 50,000 30,000 30,000 30,000 30,000 50,000 50,000 80,000 80,000 567,400 12,600 2.2%

Selling Expense – Marketing Firm 30,000 20,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 300,000 0 0.0%

General Expense – Sales Team 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 120,000 1,440,000 0 0.0%

Administrative Expense – Sales Team 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 360,000 0 0.0%

Total Expenses 224,400 217,550 220,450 225,000 205,000 205,000 205,000 205,000 225,000 225,000 255,000 255,000 2,667,400 12,600 0.5%

Net Income (Loss) – Sales Div Only 2,359,036 2,199,003 2,169,893 1,892,564 1,983,299 1,912,564 1,708,981 1,708,981 2,070,130 2,146,550 2,428,605 2,521,368 25,100,975 (355,308) -1.4%

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