Budgeting final project

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Budgeting is one of the most useful tools companies have to effectively plan and control activities. The purpose of this assignment is to give you an opportunity to apply what you have learned to a given situation. Management uses budgets to plan but also to control and evaluate performance. A performance report (also called a budget responsibility report) is a useful tool in accomplishing this management function.

Project:

Wind-it-up Company manufactures expensive watch cases sold as souvenirs. Three of its sales departments are: Retail Sales, Wholesale Sales, and Outlet Sales. The Retail Sales Department is a profit center. The Wholesale Sales Department is a cost center. Its managers merely take orders from customers who purchase through the company’s wholesale catalog. The Outlet Sales Department is an investment center because each manager is given full responsibility for an outlet store location. The manager can hire and discharge employees, purchase, maintain, and sell equipment, and in general is fairly independent of company control.

Miriam Green is a manager in the Retail Sales Department. SamForester manages the Wholesale Sales Department. JeremyGuzman manages the AlamoDome outlet store in San Antonio. The following are the budget responsibility reports for each of the three departments.

Budget
Retail Sales Wholesale Sales Outlet Sales
Sales $ 750,000 $ 400,000 $200,000
Variable costs
Cost of goods sold 150,000 100,000 25,000
Advertising 100,000 30,000 5,000
Sales salaries 75,000 15,000 3,000
Printing 10,000 20,000 5,000
Travel 20,000 30,000 2,000
Fixed costs
Rent 50,000 30,000 10,000
Insurance 5,000 2,000 1,000
Depreciation 75,000 100,000 40,000
Investment in assets 1,000,000 1,200,000 800,000

 

Actual Results
Retail Sales Wholesale Sales Outlet Sales
Sales $ 750,000 $ 400,000 $200,000
Variable costs
Cost of goods sold 195,000 120,000 26,250
Advertising 100,000 30,000 5,000
Sales salaries 75,000 15,000 3,000
Printing 10,000 20,000 5,000
Travel 15,000 20,000 1,500
Fixed costs
Rent 40,000 50,000 12,000
Insurance 5,000 2,000 1,000
Depreciation 80,000 90,000 60,000
Investment in assets 1,000,000 1,200,000 800,000

Instructions

(a) Determine which of the items should be included in the responsibility report for each of the three managers. (18 points, 6 per manager/department, clearly label each manager/department)

(b) Compare the budgeted measures with the actual results for each department (prepare a static budget income statement for each department in good form, including variable and fixed expenses) (30 points, 10 per department).

(c) Decide which results should be called to the attention of each manager and why.(21 points clearly label each of the three department/managers, 7 points per department/manager)

(d) In addition, prepare a brief memorandum to one of the department managers to address your concerns and comments regarding your findings for their department. (6 points for length/presentation/format) (25 points for addressing a. to e. below)

  1. Be specific and choose one or two of the variances to discuss in your memorandum.
  2. Consider what types of activities would have gone into that function or aspect of the company’s business. Consider the variable versus fixed nature of those activities and costs.
  3. If the variance was negative, (i.e. cost was over-budget), briefly discuss what you think might have caused this negative variance.
  4. Choose one of those causes and identify any action(s) you would recommend to insure that this did not occur in the future.
  5. Who do you think would be responsible for insuring this action was followed? Be as specific as possible.

Your paper should clearly answer or address each of the above items. There are no citations required but this is a management-thinking paper so should be based on what you know about the company and what you have learned about management accounting and budgeting.

The project report should be at least 4 pages in length, typed, double-spaced, grammatically correct and professional in appearance. The project counts for 10% of your grade and is due as indicated in course syllabus.

 

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