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# Budget Analysis

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In December of 2007, Jones Inc. was formed as a corporation. The company plans to start its operations in early January of 2008. They have the following purchases budgeted for the first quarter of 2008:

January \$600,000
February 500,000
March 300,000

Jones has worked out agreements with its various suppliers to pay for one-fourth of a month's purchases each month, beginning in the month of purchase, until the purchases are paid in full. No purchases were made prior to January.

What are total cash disbursements expected for the first quarter of 2008?
A. \$425,000.
B. \$625,000.
C. \$775,000
D. \$350,000.

Sampson Apparel Inc. incurred actual variable overhead expenses of \$62,000 in the current year for the production of 10,000 units. Variable overhead was applied at a rate of \$2.00 per direct labor hour and 3 direct labor hours were budgeted for each unit. The company used 29,000 direct labor hours for production. What was Sampson's variable overhead spending variance?
A. \$4,000 U
B. \$4,000 F.
C. \$2,000 U.
D. \$2,000 F.

#### Solution Preview

1). In December of 2007, Jones Inc. was formed as a corporation. The company plans to start its operations in early
January of 2008. They have the following purchases budgeted for the first quarter of 2008:

January \$600,000
February 500,000
March 300,000

Jones has worked out agreements with its various suppliers to pay for one-fourth of a month's purchases each
month, beginning in the month of purchase, until the purchases are paid in full. No purchases were made prior
to January.

What are total cash disbursements expected for the first quarter ...

#### Solution Summary

This two-part budget analysis exercise calls for (1) the calculation of total cash disbursements from a company's monthly financial data, and (2) the determination of the variable overhead spending variance from the company's production data.

\$2.19

## Comprehensive annual financial budget analysis

In a report format (APA based but strict adherence not required), answer the following questions, which aid in assessing the quality of the budget document you are reviewing.

Write an intro, then use each of those four categories as headings and using the questions as guides assemble them into a coherent narrative. Then do a conclusion - was the budget you reviewed effective at addressing those four categories?

These questions are paraphrased from the awards criteria established by the Government Finance Officers Association for its Distinguished Budget Presentation Awards Program:

Policy Document- Does the operating budget you are reviewing include a coherent statement of entity-wide long-term financial policies and non-financial goals and objectives? Does the budget document describe the entity's short-term initiatives that guide budget development for the upcoming year? Does the budget document include a coherent statement of goals and objectives of organizational units? Does the document include a budget message that articulates priorities and issues for the budget for the new year? Does the message describe significant changes in priorities from the current year and the factors that led to those changes?

Financial Plan- Does the budget document describe all funds that are subject to appropriation? Does the document present a summary of major revenues and expenditures as well as other financing sources and uses? Does the document include summaries of revenues, other financing sources, and expenditures and other financing uses for prior-year actual, current-year budget and/or estimated current-year actual, and proposed budget year? Are major revenue sources described? Are the underlying assumptions for revenue estimates and significant revenue trends explained? Are the underlying assumptions for revenue estimates and significant revenue trends explained? Does the document include projected changes in fund balances for governmental funds included in the budget presentation, including all balances potentially available for appropriation?

Operations Guide- Does the operating budget document describe activities, services, or functions carried out by organizational units? Are objective measures of progress toward accomplishing the government's mission, as well as goals and objectives, provided for specific units or programs? Does the budget document include an organizational chart for the entire organization? Is a schedule(s) or summary table provided giving personnel or position counts for prior, current, and budget years?

Communication Device- Does the budget document provide summary information, including an overview of significant budgetary issues, trends, and resource choices? Does the budget document explain the effect, if any, of other planning processes (e.g., strategic plans, long-range financial plans, capital improvement plans) on the budget and budget process? Is the process used to prepare, review, adopt, and amend the budget explained? Are charts and graphs used, where appropriate, to highlight financial and statistical information? Is narrative information provided when the messages conveyed by the charts and graphs are not self-evident? Does the document provide narrative, tables, schedules, or matrices to show the relationship between functional units, major funds, and non-major funds in the aggregate? Is a table of contents provided to make it easy to locate information in the document? Is there a glossary to define terms (including abbreviations and acronyms) that are not readily understood by a reasonably informed lay reader? Does the document include statistical and supplemental data that describe the organization and the community or population it serves and provide other pertinent background information related to services provided? Finally, is the document produced and formatted in such a way as to enhance understanding by the average reader? Is it attractive, consistent, and oriented to the reader's needs?

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