Question

Purpose: This assignments will assess knowledge of qualitative factors relating to differential analysis. The assignment is related to CLO5: Identify, construct, and appraise budgets for effective management.

Requirement: After reading all budgeting resources and viewing the videos, answer the following question 4 questions. If a narrative is required, create answers in your own words, using complete sentence structure and grammar. Please use citations if applicable.

The attached rubric displays grading criteria. For this specific assignment, feedback will be given 24 hours after the due date. This assignment should be processed through individual efforts. It is not a group assignment.

Part I: The General Manager  

1. Your budget analysis is out on FMLA and as a general manager, you need to prepare a quarterly budget for your company. You are budgeting a sales price of $110 per unit and they estimate they will sell 150 units in October and unit sales will increase by 5% each month after that. How many units are estimated to be sold in October, November, and December? (Round to nearest whole units and nearest whole cent.)

	Sales in Units	Sales in Dollars
October
November
December
Total for the quarter

2. Using the Sales from above you will now estimate the selling expense budget for the quarter. The sales manager makes $50,000 per year plus a 10% commission from all sales made during the month. Complete the chart below to determine the selling expense for each month and the total for the quarter. (Round your answers to the nearest whole cent.)

	October	November	December	Total
Sales Commission (10%)
Manager Salary ($50,000/yr)
Total Selling Expenses

Part II: The Consultant

3. You are reviewing a flexible budget report for a company. Indicate whether each variance in ABC Contracting’s Flexible Budget Report below is either Favorable or Unfavorable.

	(24,000 units)	(24,000 units)
	Flexible Budget	Actual Results	Variance	Favorable or Unfavorable
Sales	$960,000	$972,000	$12,000
Variable Costs	192,000	240,000	48,000
Contribution Margin	768,000	732,000	36,000
Fixed Costs	500,000	490,000	10,000
Net Income	$268,000	$242,000	$26,000

As a consultant, you need to explain to ABC Contracting variance concepts. What does it mean when a variance is described as a favorable variance and as an unfavorable variance?

4. You are a consultant for a start-up company, called Cycle Lovers Corporation, and it does not want to create a budget for the next fiscal year. The chief executive officer (CEO) of Cycle Lovers Corporation remarked to a colleague, "I do not understand why other companies waste so much time in the budgeting process. I set our company goals, and everyone strives to meet them. What is wrong with that approach?" Write a memorandum to the CEO stating whether you agree with this comment or not and explain why. The heading of the memorandum should contain the date, to whom it is written, from whom, and the subject matter.

Answer 1

	Part I
1	Sales Budget
		Sales in Units	Sales in Dollars
	October	150	16,500
	November	158	17,380
	December	165	18,150
	Total for the quarter	473	52,030
2	Selling Expense Budget
		October	November	December	Total
	Sales Commission (10%)	1650	1738	1815	5203
	Manager Salary ($50000/year)	4167	4167	4167	12500
	Total Selling Expenses	5817	5905	5982	17703
	Part II
3	Flexible Budget Report
		(24000 units)	(24000 Units)
		Flexible Budget	Actual Results	Variance	Favorable or Unfavorable
	Sales	$960,000	$972,000	$12,000	Favorable
	Variable Costs	$192,000	$240,000	$48,000	Unfavorable
	Contribution Margin	$768,000	$732,000	$36,000	Unfavorable
	Fixed Costs	$500,000	$490,000	$10,000	Favorable
	Net Income	$268,000	$242,000	$26,000	Unfavorable
	Variance analysis is the investigation of the differences between actual results and budgeted amount.
	Favourable variance means the actual result is better than the budgeted amount and it will have the
	effect of increasing operating income as compared to budgeted amounts.
	Unfavorable variance means the actual expenses are more than the budgeted expenses and it will have
	the effect of decreasing operating income as compared to budgeted amounts.
4	Memorandum
	Date: October 23, 2019
	To
	The CEO,
	Cycle Lovers Corporation
	From
	Consultant
	Subject: Importance of Budget
	Budget preparation is not a waste of time, it is an important activity that help the departments to work
	in a proper manner to achieve the financial goals of the organization. If there will be no goal, neither the
	management nor the departments will know what they have to achieve and where they stand. It will
	decrease the productivity and as a whole financial results will go done. Budget is not only to achieve the
	sales/revenue target, it is also important to control the costs of the departments. If the department will
	not have cost budget, they will not come to know whether they are spending more or less nor they will
	be able to control the cost. Thus budget is important from all the perspectives.