You have been hired as a managerial accounting manager for a business that makes

Question

You have been hired as a managerial accounting manager for a business that makes shoes focused on sports. You discover the business has never developed or used a budget despite its large size and multiple branches. You have discussed with the CFO about creating a budget for the upcoming year, but she is not convinced forming a budget will be worth the time. Create a statement covering your case for the use of an operational budget and how the usage of this budget can help the company. Also, take into consideration the idea of a flex budget and standard costing. Don't forget you want to be thorough, but don't want to write an overwhelming amount as the CFO is a busy woman.

Explanation / Answer

statement showing operational budget

less fixed cost

the statement above will show estimated amount of revenue and cost at different level of production.this can be used for variance purpose and also to find out where the improvement and control of cost to be done.

An operating budget helps you plan for the day-to-day operations of your business so you don’t run into a financial ditch. Although most budgets are written a year in advance and are based on projections, monthly or quarterly tweaking keeps you more finely tuned to how it actually unfolds. Budgeting tracks actual expenses, projects future expenses and allows you to build investments.

Managing Current Expenses

Fixed overhead costs, such as office rent and staff salaries, are a starting point for an operating budget. These are not the types of expenses that can be trimmed from your budget, unless you can reduce your staff or work hours. If you actively track some of your operating expenses, such as the cost of office supplies, you may find areas of considerable savings that could benefit your total budget and ease some financial strain.

Projecting Future Expenses

Evaluating actual past expenses can benefit your budget going forward. If you underestimated last year’s or last quarter’s operating expenses, you can write your new operating budget so it more closely aligns with the actual needs of your business. Conversely, if you overestimated past expenses, pare down the line items in your budget that correspond to unnecessary costs. You can apply these overages to other areas that were deficient in your previous budget or increase your projected reserves.

Building Reserves

An operating budget should be liberating instead of restricting. It can help you reduce debt as you work toward a goal of building financial reserves. Saving, investing and planning for unforeseen circumstances are solid benefits of a successful operating budget. Sometimes your income may be unexpectedly reduced, although your operating costs remain the same, when contracts fall through or inventory doesn’t move as expected. If you’ve built your budget around being able to keep some cash reserves, your business can more easily endure temporary setbacks.

Accountability

You can rein in your tendency to spend beyond your means if you diligently stick to an operating budget. With a well-written and closely followed operating budget, you can establish financial accountability instead of spending haphazardly and losing sight of your goals. This kind of budget is not meant to be outlined on paper and then filed away in the bottom drawer for future review. Your accountability in keeping the operating budget timely requires your ongoing involvement.

particulars 70% 80% 90% 100% Sales revenue less cost variable cost material labour cost variable overheads total variable cost contribution

less fixed cost

profit

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