Managerial Accounting - Budgeting example

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Managerial Accounting - Budgeting

Part I

Is this a static or flexible budget?

Answer: This is a flexible budget because it provides budgeted data for different levels of activities. The Charter School budget shows the budget for 120, 100, and 66 students.

What is total revenue (excluding grants) per student?

Answer: When grants are excluded, the total revenue per student is $6,063 for all the three levels.

What are the total expenses per student?

Answer: The total expenses per student for the 100 level is $5,283, for the 120 level is $4,518, and for the 66 level the total expenses per student is $7,646.

Do all expenses seem necessary?

Answer: Yes, all the expenses seem necessary apart from the field trip expenses. All the other expenses seem necessary in running the Charter School. The field trip expenses are not necessary; they are just like entertainment expenses, which are not necessary (Robinson, 2007).

What are the general benefits of preparing this budget?

Answer: the general benefits of preparing this budget include:

Improving the school targets and offering guidelines for achieving its goals.

Identifying the weaknesses of the school for the implementation of new plans by the school administration.

From the budget, the school administration can specify the objectives in the medium and long-term.

The school administration can direct efforts on expenses that are necessary for running the school and avoid those that are not necessary.

Discuss how this budget is likely to be used for the control function.

Answer: This budget is likely to be used for the control function by providing an action plan to ensure that the school’s actual activities have least deviated from the planned activities. In this manner, it could be used to ensure that the actual expenses of the school do not deviate by far from the planned expenses (Robinson, 2007).

Part II

Variance analysis is a traditional tool used for planning and control. Comment on advantages and disadvantages of using this approach for performance evaluations.

Answer: The primary advantage of variance analysis as an approach for performance evaluation is that it points out the actual activities that largely deviate from the planned activities. For this reason, the tool draws the attention of management to activities where the planned activities are different from the actual outcomes (Shim & Siegel 2008). The main disadvantage of using the variance analysis too is that it is more difficult to apply it in the service sector organizations since major portions of their costs are comprised of overhead expenses rather than product expenses (for example, direct material cost, direct labor cost, etc.) (Shim & Siegel 2008).

Do you have any suggestions for complementary or alternative performance measures?

Answer: Other possible performance measures that could be used in the place of variance analysis include; input measures, output measures, process measures, and outcome measures.

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