Tall Tree 2 Hotel Casino

First of all, there is a budgetary problem. Will Martin is the only person who has input in budget. Lowe concern that worksheet prepared by Martin not a true picture of revenue. Budget slack: inappropriate projection of lower revenue ($21,630 vs $30,119), padding the budget: inappropriate project of higher expenses ($30,439 vs $39,005), incorrect event cost figures as Martin didn’t account for revenue from gaming, incomplete budget missing variance percentages. Fixed costs of annual housekeeping and front desk shouldn’t be included in budget. Most importantly, management have problem in determining the amount of complimentary costs and allocated overhead costs. Fixed costs should allocate complimentary base on games, overhead base on driver such as floor space.

In Lowe’s worksheet, $53,800 displacement cost should be deducted from profit, it has a much higher displacement cost as the hotel is at full capacity even without special event. For pit drop, the budget figure is 0. Lowe should get managers to help with the budget number.

Clearly, both budgets are inadequate and there is a lack of communication in budgeting.

Worksheet 2 and 3 should be combined to reflect the profitability of special events by adding the revenue and department net income. Shift to participative budgeting, each manager develops his or her own budgets, accounting department consolidates.

Secondly, inappropriate responsibility centers are used to evaluate each department. Departments (beverage and other department) evaluated as profit center even though they are playing a supporting role, 77% of its sales are represented by complimentary sales, the gross margin of this department is 69.9%, it is wasteful to set a higher price. Other department’s income just accounts for 4% in the total revenue, the department margin of this department is 3.7%, it is unfair for the department to evaluate its performance. Although food department running at a 14.8% loss, the loss of food department is...