Budget Analysis and Plan for Managing Ciccetti Corporation Annual Budget
Explaining the Budgeted Income Statement
The former cost accountant created a flexible budget performance report or a flexible budgeted income statement. Reports on the performance of flexible budgets compare the actual and budgeted results. The real sales volume determines the actual performance. One financial statement that businesses use to track and plan expenses to achieve profitability is the budgeted income statement (Agustian et al., 2023). Decisions regarding the finances and future of the company are made using the budgeted income statement’s estimate of the profits, revenues, and expenses for a given period. In this regard, the company can assess its performance based on the budgeted-to-actual results by comparing the budgeted income statement at the end of a period.
Looking at the prepared budgeted income statement, the categories for the budgeted income statement are displayed in the column on the left. Whereas the amounts in the flexible budget column represent the actual performance numbers attained, the planning budget column represents the estimated performance. The difference between the actual performance and the budgeted performance is displayed in the activity variances column. When an F appears after an activity variance number, the activity variance is deemed favorable. On the other hand, an unfavorable activity variance is indicated by an activity variance number and a U. In addition, there is no change if the activity variance column has a zero. The actual budget for several of the categories in the budgeted income statement, such as revenue, wages and salaries, supplies, and miscellaneous expenses, is determined using the number of customers served. Lastly, the net operating income balance is calculated by adding up all the expenses and deducting them from revenue.
Creating Annual Budgeted Financial Statements
Financial statements with an annual budget are crucial for businesses. As such, it is important to have a firm grasp of the company before creating an annual budgeted income statement. In this respect, as a recently hired cost accountant, I would make sure that when creating the annual budgeted income statement, I would account for every aspect of the company. After that, I would review previous budgeted income statements to detect any patterns in the budgeted-to-actual figures for earlier timeframes. In addition, I would need to figure out any fixed costs that are not going to fluctuate throughout the year. Further, I would aim to project how many customers we will serve over the year based on the current year and prior year performances, as the number of customers served influences several other figures in the budgeted income statement. Notably, this figure will be used to estimate revenues after estimating the number of customers served. Next, using historical and current data, I will project the costs and use the budgeted figures to estimate the net operating income Ciccettti Corporation should expect. The manager and other representatives of the company will be able to make well-informed decisions regarding the direction of the business by creating the annual budgeted income statement.
Differences Between a Static Budget and a Flexible Budget
On the one hand, a static budget is a set of financial plans that stay the same for a predetermined amount of time, usually a fiscal year. It is predicated on a set activity level, like the level of production. Static budgets offer a clear, fixed point of reference against which to compare actual performance, making them helpful for establishing initial targets and benchmarks. However, if actual conditions differ significantly from the initial assumptions, their rigidity may render them less relevant.
A flexible budget, on the other hand, is an adjustable conception of allocating amounts with actual performance levels achieved (Mucci et al., 2021). It does this by considering that spending depends on the amount of activity involved and modifying the budget due to changes in the significance of an event. As flexible budgets are prepared with the differences in activities that influence costs and revenues in mind, they can be used for more effective performance appraisal and analysis of variances. Static budgets are great for the establishment of the initial target. At the same time, dynamic budgets encourage a more manageable and realistic setting that is more adaptable to changing conditions, where decisions are based on the actual gain experienced.
The Importance of Reading and Correctly Interpreting Budgeted Financial Statements
Reading and understanding budgeted financial statements is essential for properly managing and making well-informed decisions concerning the financial affairs of an organization. Revenues, expenditures, and cash flow projections are among the expected financial performance that the company discloses in these statements. Olanyika (2022) reveals that stakeholders can view their ability to accomplish financial goals, identify opportunities and threats, allocate assets and launch strategies with confidence when they study budgeted financial statements. For instance, these reports allow individuals and companies to compare the real revenue figures with the budgeted ones so that they can take immediate action when it is needed. As a result, good financial stewardship requires the ability to read and understand these statements.
References
Agustian, H., Ilham, R. N., Sinta, I., & Feinberg, B. (2023). Analysis of common size on BSI (Bank Syariah Indonesia) in 2020-2021. Journal of Accounting Research, Utility Finance and Digital Assets, 1(3), 195–202. https://doi.org/10.54443/jaruda.v1i3.28
Mucci, D. M., Frezatti, F., & Bido, D. D. S. (2021). Enabling design characteristics and budget usefulness. RAUSP Management Journal, 56(1), 38–54. https://doi.org/10.1108/rausp-04-2019-0058
Olayinka, A. A. (2022). Financial statement analysis as a tool for investment decisions and assessment of companies’ performance. International Journal of Financial, Accounting, and Management, 4(1), 49–66. https://doi.org/10.35912/
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Question 
Overview
You are hired as a new cost accountant at Ciccetti Corporation. The company manager, David, is having a meeting with you in his office. He brought you this budgeted income statement that was completed by the previous cost accountant. David asks you to provide him with a report explaining the statement in clear, straightforward language, and how you plan to handle the annual budget.
Budget Analysis and Plan for Managing Ciccetti Corporation Annual Budget
Instructions
Write a 2–3 page report in which you:
Explain the budgeted income statement.
Outline how you would create annual budgeted financial statements.
Analyze the difference between a static budget and a flexible budget, including the importance of each.
Evaluate the importance of reading and correctly interpreting budgeted financial statements.
Use three sources to support your writing. Choose sources that are credible, relevant, and appropriate. Cite each source listed on your source page at least one time within your assignment.