WMBA 6050 Week 4 Operating and Cash Budget Example

A $5.04 Million Season Built From Rounds Up and Defended Line by Line: Next Year's Operating and Cash Budget for a Golf Club, Written for an Owner Who Expects to Say No

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Walden University

WMBA 6050: Accounting for Management Decision Making

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Month Day, Year

A $5.04 Million Season Built From Rounds Up and Defended Line by Line: Next Year's Operating and Cash Budget for a Golf Club, Written for an Owner Who Expects to Say No

The Reader and the Approach

The owner of Briar Hollow, an invented course with a restaurant and banquet hall, has rejected the last two budgets the managers proposed, both times for the same reason: the growth figures were optimistic and nobody could say what would happen if they were wrong. This budget is built for that reader. The numbers are assembled in the usual order, from volume to revenue to costs to cash, but most of this paper defends the assumptions that drive them and shows what happens when the most important one fails.

Budgets remain the main planning tool in most organizations. A survey of North American companies found that very few intended to abandon budgeting, though many were changing how they used it, often by relying less on fixed targets and more on forecasts that could be revised (Libby & Lindsay, 2010). This budget follows that spirit: it gives a plan, the reasons behind it and the trigger for revising it.

Revenue: Built From Volume

Table 1

Revenue Budget With the Assumption Behind Each Line

All figures are composite.

The two growth assumptions that matter most are rounds and banquets. Rounds grew 2.3 percent last season and 1.9 percent the season before, so 2.9 percent is above trend. The case for it is that the club will add a twilight rate on weekdays after 4 p.m., aimed at players who now go to a nine-hole course nearby, and that last year lost about 900 rounds to an unusually wet May. If May weather is normal, the recovered rounds alone account for most of the increase. The price increase of 2.6 percent is smaller than last year's 4.6 percent, which is deliberate after a season in which the club raised prices without losing volume but is now above most competitors on weekend mornings.

The banquet figure is better supported than it looks. Seventy-one of the 92 events are already under contract with deposits, so 77 percent of banquet revenue is booked before the season begins. The remaining 21 events assume the same late-booking pattern as last year, when 23 events were booked after January.

Costs

Course costs follow the fixed and variable split developed in Week 3, using the standard approach to cost behavior (Garrison et al., 2021): about $14.65 per round in variable cost and $155,170 a month in fixed cost while open, with fixed costs rising 3 percent for wages. Food and beverage costs are budgeted at 32 percent of restaurant and banquet sales, the same as last season, although the revised banquet price list should bring that down. Depreciation rises by about $40,000 as the first irrigation phase enters service.

Table 2

Budgeted Operating Results

Composite figures; the club is a pass-through entity and pays no income tax itself.

Cash, Quarter by Quarter

The cash budget matters more than the income budget this year, because the Week 2 memo showed the club's cash no longer covers customer deposits and near-term bills. The budget assumes the remaining irrigation work is financed with a $1.2 million term loan drawn in two parts, so the project no longer draws on operating cash.

Table 3

Cash Budget by Quarter

Starts from $520,000 of cash; loan draws and irrigation payments offset each other and are excluded; composite figures.

At year end, cash of about $1.32 million would exceed customer deposits, expected to be about $500,000, by a wide margin. That is the budget's most important result for the owner: it restores the cushion the club lost last year.

What Happens When the First Assumption Is Wrong

The owner will ask what happens if rounds do not grow. Suppose rounds stay at last season's 31,500 and May is as wet as last year, costing another 900 rounds, so the club plays 30,600 instead of 32,400. At the budgeted price, each lost round removes about $55.75 of contribution, so 1,800 fewer rounds reduce operating income by about $100,000, to roughly $499,000. Suppose also that no banquets are booked beyond the 71 already contracted. The 21 missing events would remove about $181,000 of revenue and, after food and variable labor, about $95,000 of contribution. Both together reduce operating income to about $404,000, roughly $150,000 below last season's $557,000, and income after interest to about $215,000. Year-end cash would fall by a similar amount but would still exceed deposits.

The Revision Trigger

The budget includes one trigger. If rounds through May 31 are more than 8 percent below plan, the general manager will present a revised forecast in the first week of June, with spending cuts listed in advance: delayed equipment purchases, reduced seasonal hours in the pro shop and a pause on the planned patio furniture. Datar and Rajan (2021) describe a flexible budget as one that adjusts for actual volume, and the June review will compare results against that standard rather than against the original totals.

References

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial accounting (17th ed.). McGraw Hill.

Libby, T., & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Management Accounting Research, 21(1), 56-75. https://doi.org/10.1016/j.mar.2009.10.003