Riverside Café: Flexing the Budget Before Judging Actual Costs

Flexed budget at 2,200 covers

Cost	Flexed budget	Actual	Variance	A/F
Food (£6.00 × 2,200)	13,200.00	13,860.00	660.00	Adverse
Labour (fixed)	4,000.00	4,180.00	180.00	Adverse
Rent (fixed)	1,500.00	1,500.00	0.00	–
Other variable (£1.20 × 2,200)	2,640.00	2,530.00	110.00	Favourable
Total	21,340.00	22,070.00	730.00	Adverse

Useful unit check (food)

• Actual food per cover = £13,860 ÷ 2,200 = £6.30 (vs £6.00 budget) → 30p × 2,200 = £660 adverse
• Actual other variable per cover = £2,530 ÷ 2,200 = £1.15 (vs £1.20) → 5p × 2,200 = £110 favourable

Note: comparing actuals to the original £20,240 budget would wrongly show food £2,140 favourable and total costs £1,830 adverse, simply because 200 extra covers were sold.

Why the original comparison misleads The original budget assumed 2,000 covers; Riverside sold 2,200. Some costs - food and other variable costs - should rise when sales volume rises, so the extra spend is not mismanagement. Flexing the budget to actual volume removes the volume effect and leaves only the differences the owner can actually control (price paid per unit and quantity used).

Priority order for investigation

1. Food, £660 adverse - investigate first. It is the largest controllable variance and it is a rate problem, not a volume one: 30p per cover more than expected. Likely causes: supplier price rises not passed through, more waste or spoilage, larger portion sizes, a shift in menu mix towards costlier dishes, or pilferage. Check purchase invoices, portion standards and the waste log. At £6.30 per cover, every 10p saved is £220 a month at current volumes.
2. Other variable costs, £110 favourable - check it is genuine. A favourable variance can hide under-spending that damages the product (e.g. cleaning chemicals, laundry or marketing cut back), so confirm it is efficiency, not neglect.
3. Labour, £180 adverse. Labour is fixed in the budget for 2,000 covers, so the whole £180 is a spending variance - extra hours, an agency shift or a pay rise - rather than flexing. Check whether the extra 200 covers were handled without extra staff; if two extra shifts were needed every month, the budget assumption of fixed labour is wrong and should be revised.

Conclusion for the owner: the café is £730 worse off than it should be at 2,200 covers, and the food line explains most of it.

Presentation advice

• Keep it to one page: a short summary sentence, then the flexed budget table, then no more than three recommended actions.
• Lead with the headline: 'At 2,200 covers, costs were £730 higher than they should have been; £660 of that is food.'
• Avoid jargon or explain it once: 'adverse' = spent more than expected; 'flexed' = reset for the covers actually sold.
• Show the money impact of each variance and the effect of fixing it (e.g. '10p per cover on food = £220 a month'), because that is what drives her decision.
• Compare with a benchmark she recognises - last month, or the same month last year at a similar volume - not just a budget.
• Separate controllable from non-controllable items, and say clearly what she is being asked to decide.

Limitations

• The flexed budget assumes variable costs move in a straight line with covers, and it uses an average £6.00 food cost. If the extra 200 covers came from a different menu mix (e.g. more steak, fewer pastries), the 30p gap is partly mix, not overspending, and the report cannot tell her which.
• It is also a monthly snapshot of money only: it says nothing about stock movements, wastage quantities, or whether food quality rose. A single month can be distorted by timing (e.g. a large delivery invoiced in April for May's use), so the figures should be read over two or three months before structural changes are made.