Let's try to apply our knowledge of variable costing and review a sample budget for a charter school. This budget is prepared assuming three levels of student enrollment (66, 100 and 120). Revenue and expenses projections are shown in the budget. Operating assumptions are shown in "Schedule A".
The first requirement of this case relates to the planning function of a budget. Comment on the following relating to the charter school budget:
(1) Is this a static or flexible budget?
(2) What is total revenue (excluding grants) per student?
(3) What are total expenses per student?
(4) Do all expenses seem necessary?
(5) Is this school viable? How many students does the school need to break even (show your calculations with analysis and state your assumptions for break-even)?
(Note: For break even analysis - Ignore revenue received as "Grants" and "Startup Costs" (Schedule A).
(6) What are the general benefits of preparing this budget?
(7) Discuss how this budget is likely to be used for the control function.
The second requirement of this case relates to the control function of a budget. Use the background material and Internet to answer the following questions.
(1) Variance analysis is a traditional tool used for planning and control. Comment on advantages and disadvantages of using this approach for performance evaluations.
(2) Do you have any suggestions for complementary or alternative performance measures?
Charter School Budget
Type of Budget
The charter school budget appears to be a flexible budget. Static budgets only assume one level of activity. This budget shows expenses and revenues for three levels of student enrollment (66, 100 and 120). This is typical of a flexible budget: adjusting the variable costs and revenues for activity so that you can get an idea of how the elements change over the range of expected activity.
Total revenue (excluding grants) per student
Per Student General Revenue $3,546.00
Per Student Compensatory revenue $1,775.00
Per Student Transport Revenue $170.00
Per Student Transportation Reduction -$42.44
Per Student Food Reimbursement $246.50
Per Student Federal Title I Funds $368.00
Revenue per student $ 6,063.06
Total expenses per student
Costs that are variable per student:
staff dev $ 100.00
field trips $ 40.00
instructional materials $ 150.00
instructional supplies $ 60.00
printing and copying $ 98.00
food service $ 246.50
per student cost $ 694.50
Expenses: Do all seem needed?
This is a tough thing to figure out unless you are fairly familiar with charter schools! But, as an outsider, the majority of the costs are salaries, benefits and occupancy costs. Those seem pretty necessary to me! I suppose the field trip costs might be a discretionary item but I think ...
Your tutorial is 846 words and includes schedules for revenue per student, variable costs per student and breakeven per student. Two pros and three cons of variance analysis are given and five examples of alternative measures are given.