2001 Budget Executive Summary
File: SGMU M:MSMFin642Spacely-Budget.xls
Last Revised: 12/17/01
Prepared by: Tom Gruber
General Budget calls for reasonable increases in sales, prices and expenses except for labor. We have to keep overtime under control to return to profitability.
Set reasonable sales increase of 3-4% with a normal price increase of 3%
Steel prices look like they will hold as the economy softens.
Reducing over time is the key to this year's budget. Planning raise at parity with labor market of 3%.
Raises at market (3-4%).
Sales volume is always a risk, but biggest issue is controlling overtime.
Variance analysis, detailed visible form,
Instructions on Spacely variance, comparative budgets under two other files.
See attached file for full problem description.
ONE PAGE MEMO TO BOSS
HIGHLIGHTS OF THE PERFORMANCE
1. ACTUAL SALES HAS EXCEEDED OUR EXPECTATIONS AND IT IS $4566388
2. SALES IN UNITS IS MORE THAN THE STANDARD AND IT IS 565000 UNITS
3. FIXED MANUFACTURING OVERHEAD IS LESS THAN THE BUDGETED COST
4. OTHER EXPENSES ARE IN CONTROL
1. ACTUAL PROFIT IS LESS THAN OUR EXPECTATIONS AND IT IS only $6561
2. Variable expenses are more THAN THE BUDGETED COST and it has exceeded by $614052. This is due to higher labour, material and variable expenses.
3. OUR CONTRIBUTION MARGIN IS LESS THAN OUR EXPECTATIONS BY 4%
THOUGH OUR SALES HAVE GONE UP BUT OUR PROFITS HAVE GONE DOWN ACCORDING TO STANDARDS.
Questions to be asked to Plant manger
When we look at variances, we are trying to establish the difference between what has actually happened (what we did achieve) and what we thought should have happened, namely the original budget (what we should have achieved).
The sales revenue figure that will be included in the profit and loss account would have been calculated by multiplying the total units sold by the price per unit. When looking at the sales variances we once again consider two aspects; was the selling price as per the original budget (the price variance) and were the number of units sold as budgeted (the volume variance).
The first of these variances is in monetary terms and the second being in units.
The sales price variance, as you would expect, looks at the price that we did get, the actual revenue received from the sale of the units, and the price we should have got if the standard price per unit had been obtained. The variance is clearly UNFAVOURABLE since we did not receive the amount of ...
This explains in detail the steps to calculate variances like material variance, labour variance, overhead variance, sales variance.