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    Budgeting and planning & control function of a budget

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    Part I.

    We have learned about the basic ideas of managerial accounting during the first two modules. Let's try to apply this knowledge 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.

    Part II.

    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?

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    Solution Preview

    Part I:

    1. It is a flexible budget because it adjusts for variances in volume of activity. The budget is prepared based on three levels of activity and this includes enrollment of 66, 100, and 120 students.

    2. Total revenue per student is the same despite student enrollment and it is determined to be $ 6,063 per student

    3. The total expense per student is $ 4,518 for 120 students, $ 5,283 for 100 students and $ 7,646 for 66 students.

    4. All the expenses seem necessary since they are costs that are incurred in starting up and running a business. There are selling costs such as advertising, capital expenses such as computer equipment and operational costs such as salaries, field trips and maintenance and repairs.

    5. The school is viable because it is generating income despite the level of activity. Income received increases with number of enrollment thus a high enrollment will provide high levels of profit. Also the total costs incurred in the startup can be repaid from net income. ...

    Solution Summary

    This solution provides assistance with the questions attached regarding budgeting and planning, as well as the control function of a budget.