Fast-food restaurants have reported that they sold the majority of their culinary offerings. Burgers make up the only stream of income with an overbudgeted forecast and low actual sales. Fries and drinks sales were less than the budgeted projections by 0.02 percent and 0.01%, respectively. Out of all the revenue-generating fast food restaurants, burgers made up 40% of sales. The management team also predicted that burgers, which were more profitable than fries and beverages, would be able to generate higher income based upon the sales figures for each of the top three revenue-generating fast food restaurants.
These variances are caused by the economic resilience, consumer demands and expectations, as well as competitive activity. The unanticipated nature these factors makes it necessary for top management to investigate exactly what caused Burgers’ shortage of variance. Based on the results, the fast-food restaurant managers may adjust the appropriate expenditure plan. (Perrigott et. al., 2002). Fast-food restaurants should review their marketing and spending strategies. They may also need to reduce advertising or promotional expenses. The fast-food establishment should take advantage of this valuable information in order to increase its budgetary strategy and improve its processes. Management should not overstate or significantly alter pricing due to temporary concerns. This will only cause temporary damage and may be detrimental for the business.
A revenue shortfall can negatively affect a company’s credit rating if it is not rectified. A persistent deficit could mean that a company cannot meet future and current recurrent commitments. (Gavieiro Besteiro. 2022). This means that the company may have to cut its investments, or redistribute its surplus income to make up the difference.
A majority of fast-food restaurant’s expenditures are affected by a lack of revenue. A firm that has a shortfall in revenue often pays its expenses using savings from other parts of the economy.
Fries, burgers and drinks make up the highest-priced items at a fast food restaurant. The management allocated more money for hamburgers than the three other food options. Fries and drinks reported an excess in budgeted and allocated expenditures. Drinks consumed 3.5% of sales, while management had expected that beverages would consume 3.7%. Additionally, expenditures accounted for 9.31%, which is a difference of -0.0010% to the expected costs. Burgers actual expenses were 0.0029 less than the budget. This results in variable overhead variance.
If expenses exceed estimates, unfavorable variances can signify a financial deficiency. Variances can be caused by leadership-caused factors such as decreased standards and changing business or economic conditions.