Budgeting Part I Type of Budget The type of budget presented by St. Paul Family Learning Center, Minnesota is a flexible budget that represents different working figures depended on the number of students that the school is contemplating to work with during the anticipated learning period. The fact that the budget explores various levels of operation in deliberating the amount of expenditure to be incurred under the period in consideration is the representation of the flexibility exhibited in the figures. A flexible budget is adjustable to a number of operation levels in order to make it representational of the actual operation level (Edwards Hermanson and Invacevich, 2007).
Reimbursements and Expenditure From the budgeted figures, each student will have revenue apportioned at USD 5996 at the 60-operation student level, which attracts expenses at USD 6963 for the same level. This implies that at this level, there will be no reimbursement USD (5996-6963= -967) but fees payable totaling to USD 967 per student. At the 100 students-operation level, revenues per student totals to USD 5830 and expenditure totaling to USD 5061 which gives reimbursements of USD (5830-5061=769).
On the final level of operation for 120 students, revenues per student amount to USD 5667 while expenditure per student amounts to USD 4804 giving reimbursements of USD (5667-4804=863). Highest Expense Categories Among the highest expense categories across the operation levels are development and recurrent elements of the school’s operation. For instance, the building lease attracts a fixed expense of over USD 102,000 while salaries account for USD 218,331; 180,630 and 180,623 for student operation levels of 120, 100 and 60 respectively. This illustrates the implication of higher operation levels on the actual expenses, while also gives an account of the revenue generating capacity of a higher level of operation.
Expenses Nearly all the expense categories appear logical for inclusion in a school budget. However, there are some scrutiny issues that can raise issues on their validity. Some of the expenses included in the budget are seemingly not necessary such as field trips for students which for instance stand at USD 2640 at the 60 students-operating level, whose correction ought to give a lower figure at USD 2400 at USD 40 per student.
The difference of in this figure is not justifiable which raises questions on the necessity of the entire expenditure. Viability and Break Even Analysis Apparently, operations at the current budget for the 60 students-operation level are not viable and needs consideration and readjustment. The break even analysis would be achieved if the school management can fix its expenditure at the exact revenue level. This implies that the operations are streamlined for expenditure projections not to exceed, neither less than the available revenue. This implies that the expenditure for all the operation levels are fixed at USD 395,715; 583,000 and 680,063 for 60, 100 and 120 students operating levels respectively.
Benefits of the Budget The budget enables the management to control operations within the limits that the revenues can support as well as offer operation guidelines. Budget making involves various departments which also act in coordination of activities in an organization. Uses of the Budget The budget is used as the financial guide in departmental involvement with expenditure items.
It is therefore used in the management engagement with financial aspect and sustainability of the organization. Part II Variance Analysis: Advantages and Disadvantages Advantages i) Detection of favorable and unfavorable operation activities assists in control. ii) Assist in determination of flexibility limits for costs. iii) Assists in setting of internal control standards at the departmental level in terms of finance. iv) Variance analysis assists in achieving congruence of goals thereby reducing suboptimality. Disadvantages i) Variance analysis depends on the setting of standards which could be incorrect. ii) Standard setting affects employees’ performance if the implementation is not accurately done iii) Temporal element means that the set standards are faced with obsolescence iv) It is a time consuming activity and usually complicated (Brown, 1991). Complementary and Alternative Performance Measures An important modification of the intentions of variance analysis is the scorecard approach which targets different departments in terms of performance.
The balanced scorecard approach formulates performance standards from which performance can be evaluated (Walter, 2011). In light of this operation, the mechanism of the variance analysis is maximized and extended to other departments and applications. References Brown, G. (1991) Cost and management accounting I.
Lonodn, UK: ACCA Edwards, J. D., Hermanson, R. H. & Invacevich, S. D. (2007) “Accounting Principles: A Business Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 108-113, 128-134, 165-169 and 181-183.” Retrieved from: http: //docs. globaltext. terry. uga. edu: 8095/anonymous/webdav/Accounting%20Principles/Accounting%20Principles%20Vol. %202.pdf Walter, L. M. (2011) “Principles of Accounting: A Complete Online Text, Chapters 21 and 22,” Retrieved from http: //www. principlesofaccounting. com/