Accounting Case Study · Hospitality management accounting
Revenue Growth but Declining Profit
Fictional portfolio demonstration. All businesses, events and financial figures are invented for educational illustration; this is not a claim of client work.
Business background & problem
A fictional hospitality operator reports growing sales but falling operating profit compared with the prior period.
Financial evidence
| Measure | Value |
|---|---|
| Prior-period revenue | £500,000 |
| Current-period revenue | £550,000 |
| Revenue growth | 10.0% |
| Prior cost of sales | £190,000 |
| Current cost of sales | £231,000 |
| Prior payroll | £155,000 |
| Current payroll | £181,000 |
| Prior other operating costs | £85,000 |
| Current other operating costs | £93,000 |
| Prior operating profit | £70,000 |
| Current operating profit | £45,000 |
| Operating margin: prior / current | 14.0% / 8.2% |
Analysis and diagnosis
Sales rose £50,000, but cost of sales rose £41,000, payroll £26,000 and other costs £8,000. Total cost growth of £75,000 exceeded revenue growth, reducing operating profit by £25,000.
Investigation approach
- Compare sales mix, menu pricing, discounts and transaction volumes.
- Investigate food-cost percentages, purchase price changes, waste and stock-count variances.
- Analyse labour scheduling, overtime and productivity relative to trading patterns.
- Prepare a bridge from prior-period to current-period operating profit and validate cost classification.
Recommended solutions & controls
- Introduce weekly food-cost and labour-cost KPIs with accountable owners.
- Review supplier pricing, portion controls and waste logs.
- Refresh budgets using realistic volume and cost assumptions; monitor corrective actions.
Expected outcome
Clear visibility of margin pressure and a prioritised cost-improvement plan, without assuming savings before implementation.
Key learning
Reliable financial decisions depend on reconciled data, documented assumptions, proportionate controls and clear communication with stakeholders.