Budgeting This Budget Is a Static Budget.

Budgeting This budget is a static budget. The variable components are based on the number of students, and in this budget the amount of students is assumed to be fixed throughout the year. The budget does include three different student levels, but this reflects sensitivity analysis, not a flexible budget that changes over the course of the year. To make the budget flexible, the school would need to make changes to the different elements of the budget as the school year progresses.

That is entirely possible the way this budget is structured, but the possibility of converting it to a flexible budget does not make it a flexible budget. The total revenue per student excluding grants is taken by adding up the non-grant revenues per student: $6,063.06 The total expenses per student depends on how many students. At the 120 student assumption, total expense per student are $4,518; at the 100 student level the total expenses per student are $5,283; and at the 66 student level the total expenses per student are $7,646. 4.

It appears that most of these expenses are necessary. Technology enhancement might be something that is not necessary. Advertising can be cut, but that might affect the number of students. Grass removal might not be totally necessary, either, but for the most part the expenses are normal expenses one would expect from a school. Many items could, however, be subject to reduction. 5. The school is viable. The (non-grant) revenues per student are $6,063.06. Variable expenses per student are $654.50, leaving a contribution margin of $5,408.56. The total fixed costs are $470,817.

This gives a breakeven point of 87.05 students, or 81 students. 6. There are a few benefits of preparing this budget. The first is that it allows the school to determine its breakeven point. The school also has the ability to adjust levels of expenses and subject the budget to a sensitivity analysis (the enrollment figures are a form of this as well). The budget gives management information on what are the revenue and cost drivers at the school, allowing for better decision making.

These budgets also help to provide mechanisms for variance analysis, and they are used to help the school make better choices about its purchasing and other expenses. 7. This budget is likely to be used for a control function. The budget provides levels by which actual performance can be judged. When managers know what the deviations are, they can focus on finding ways to ensure that negative deviations do not occur again -- the control function. Variance analysis is the key to using a budget like this for control.

However, the assumptions that management uses to set these budget expectations also needs to be taken into account. Part II. 1. There are both advantages and disadvantages to using variance analysis for performance evaluations. The biggest advantage is that the use of quantitative data is useful because it is closer to impartial, when compared with qualitative analysis. Quantitative data is preferred because it means that performance evaluations are not based on subject measures. The measures are objective and they can be measured.

This provides a greater sense of fairness in the performance evaluation. Variance analysis can also allow the employees to know ahead of time what is expected of them -- on what they will be measured. The are three main disadvantages to using variance analysis in performance evaluations. The first is that variance does not attribute causation. A worker could theoretically be measured on a variance that he/she did not have complete control over.

In such situations, the use of variance analysis would be unfair, because the worker would not be rated on his/her own performance. The second disadvantage of using variance analysis in performance evaluations is that it orients the worker only to those activities that are being measured. Other activities, such as customer service, may be important to the company but may not be.