In: Finance
EA2. LO 9.3Consider the national nonprofit organization the American Red Cross. Assume you are the regional director of the organization, and you just received the quarterly financial reports. Even though the organization is a nonprofit, assume it is set up as a profit center because it is helpful for the financial reports to show both donations and expenses by each region/location. One particular report shows there is one location in your region that is extremely over budget on nearly every expense item. From a management perspective, can you think of a reason(s) when going over budget might actually be a good thing? As the regional manager, how might you respond to the overages to help the particular location in the future?
Over budgeting can be helpful because it will make the organisation incur excess expenditure which are related to future budgets and they can be discounted in the present budget so when there would bear the cost of the future expenditures and there would be excess surplus on the hands of the company.
In this case, it can be seen that one location in my region is extremely overbudgeted on nearly every expense item so this business will be increasing excess cost in the present year and it will be cutting out on the future costs so it would be helpful in the preparation of budget in future but that's because the future budget will be having lesser amount of expenses and more amount of income so that would lead to higher surplus in hands of the non-profit organisation.
so it can be said that over budgeting can help in having higher amount of surplus in future because of higher expenses incurred in present.
Overages in relation to particular location would be having higher surplus in hand which can be expensed by the non-profit organisation without much load on the books of accounts so they will be trying to use the overages because overage are related to having higher surplus on the hands of the company and it will be helping this particular location in order to gain more ground through incurrinhg of higher capital expenditure that will be leading to higher profit potential in future.