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Analysis of Profitability & Capital Budgeting: Hersheys 2008 Operating Budget

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Part I
The objective of Part I is for the student to become familiar with the cost-volume-profit analysis as a tool used for decision making. Review the "Consolidated Statements of Income" In Hershey's 2007 annual report (ignore all figures below net income, such as, per share information). Using the spreadsheet below fill in requirements 1 through 4 in the spreadsheet using the following data:
1. Units Sold
a. 2005 - 100,000,000 units
b. 2006 - 100,400,000 units
c. 2007 - 200,000,000 units
2. Variable Manufacturing Costs Percentage - 45% of Cost of Sales
3. Variable Marketing Costs Percentage - 15% of Cost of Sales
4. Fixed Costs Percentage - 40% of Cost of Sales

Part II
The objective of Part II is for the student to become familiar with the budget concepts as a tool used for decision making. There are primarily two types of Budgets; strategic and operational. Strategic budgets are more long term planning; operational budgets are short term. Either budget follows a process of compilation and revision. Revision is caused by feedback from those who are responsible for implementing the budget. The budget compilation process begins with developing a Master Budget. The Master Budget includes the operational and financial plans of the organization. Budgets are used to coordinate, communicate, and motivate managers and employees. Since this course is focused on managerial analysis, we will couch our discussion in the operational budget process. The following items will be assessed in particular:
1. Review the analysis of the "Consolidated Statements of Income" in Hershey's 2007 annual report completed in the Part I. In a 2 to 3 page written report, using the data requirements in 2 and 3 of Part I, create a hypothetical operational budget for 2008.
2. Evaluate and discuss the assumptions you made to compile the hypothetical operation budget. The changes made should take into consideration the "What if?" in the requirement 4 section.

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Your contribution margin income statement and forecast for 2008 is presented along with 733 words of ...

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Your contribution margin income statement and forecast for 2008 is presented along with 733 words of discussion about the forecast and the assumptions (just over two pages). The cells in excel are formulas so you can click on them and see how the amounts were computed. The forecast was done two ways, one assuming an increase in sales volume and one assuming a decrease in sales volume. This is explained in the discussion.

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