Gadget Division Budget

Analysis of Gadgets Division Budget

Smart Enterprises
Gadget Division
Budgeted Income Statement
For the Year Ended December 31st
	Budget for this year		Budget For Next Year
Account	Amount	Percentage of Net sales	Amount	Percentage of Net Sales
Radios	850,000	45.11	910,000	44.50
Appliances	680,000	36.09	740,000	36.19
Telephones	270,000	14.33	305,000	14.91
Miscellaneous	84,400	4.48	90,000	4.40
Net sales	1,884,400	100.00	2,045,000	100.00
Less cost of goods sold	750,960	39.85	715,500	34.99
Gross Margin	1,133,440	60.15	1,327,500	64.91

Operating Expenses
wages
warehouse	94,500	5.01	102,250	5.00
Purchasing	78	0.00	84,000	4.11
Delivery / shipping	6,400	0.34	74,400	3.64
Maintenance	42,650	2.26	45,670	2.23
salaries
Supervisory	60,000	3.18	92,250	4.51
Executive	130,000	6.90	164,000	8.02
Purchases, supplies	17,400	0.92	20,500	1.00
Maintenance	72,400	3.84	82,000	4.01
Depreciation	62,000	3.29	74,000	3.62
Building rent	96,000	5.09	102,500	5.01
Sales Commissions	188,440	10.00	204,500	10.00
Insurance
Fire	12,670	0.67	20,500	1.00
Liability	18,200	0.97	20,500	1.00
Utilities	14,100	0.75	15,375	0.75
Taxes
Property	16,600	0.88	18,450	0.90
Payroll	26,520	1.41	41,000	2.00
Miscellaneous	4,610	0.24	10,250	0.50
Total Operating Expenses	1,003,290	53.24	1,172,145	57.32
Income from operations	130,150	6.91	155,355	7.60

Based on the above analysis and the actual figures posted this year, it was noted that there were several discrepancies in the budget; some items were overstated, and others were understated. Some of the major items, such as radio sales, had been overstated. The budget committee should inform Gadgets Division managers that their budget has some discrepancies which need to be revised before being included in the master budget. The reason being their previous budget for this year had several variations between the budgeted estimates and the actual results for the year. Notably, the budget had overstated items that significantly impacted the firm’s revenue, e.g., sales from the radio. Gadget Division’s budget for the next year would probably have variations similar to the previous year’s budget and would be less effective in the firm’s financial planning operations.

Notably, the percentage of net sales for radio sales in the actual figures for the year was 43.94% while that in the budget was 45.11%. This item, therefore, needs to be corrected in the budget to reflect the actual sales made in the year. Similarly, the percentage of sales from telephone revenue on the actual results was 15.77%, while that in the planning budget was 14%. The percentage of sales on miscellaneous income has been projected at 4.48%, yet the actual cost was only 4.23%. The value of goods sold has been understated by more than 3%; these estimates need to be changed to match the actual results. The budget needs to be revised and the data altered to achieve a more precise budget that would be effective in planning.

References

Needles, B. E., Powers, M., & Crosson, S. V. (2013). Financial and Managerial Accounting. Nelson Education.

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Question

The Gadget Division Budget

I need help with the Accounting Problem from chapter 20: Case 4.

Gadget Division Budget

The textbook reading are from

Financial and Managerial Accounting 10^th Edition by Belverd E. Needles, Martin Powers, and Susan V Crosson

Since Smart Enterprises inaugurated participative budgeting 10 years ago, everyone in the organization—from maintenance personnel to the president’s staff—has had a voice in the budgeting process. Until recently, participative budgeting has worked in the best interests of the company as a whole. Now, however, it is becoming evident that some managers are using the practice solely to benefit their own divisions. The budget committee has therefore asked you, the company’s controller, to analyze this year’s divisional budgets carefully before incorporating them into the company’s master budget.

The Gadget Division was the first of the company’s six divisions to submit its budget request for next year. The division’s budgeted income statement follows.

Smart Enterprises
Gadget Division
Budgeted Income Statement
For the Year Ended December 31st
	Budget for this year		Budget For Next Year
Account	Amount	Percentage of Net sales	Amount	Percentage of Net Sales
Radios	850,000	45.11	910,000	44.50
Appliances	680,000	36.09	740,000	36.19
Telephones	270,000	14.33	305,000	14.91
Miscellaneous	84,400	4.48	90,000	4.40
Net sales	1,884,400	100.00	2,045,000	100.00
Less cost of goods sold	750,960	39.85	715,500	34.99
Gross Margin	1,133,440	60.15	1,327,500	64.91

Operating Expenses
wages
warehouse	94,500	5.01	102,250	5.00
Purchasing	78	0.00	84,000	4.11
Delivery / shipping	6,400	0.34	74,400	3.64
Maintainance	42,650	2.26	45,670	2.23
salaries
Supervisory	60,000	3.18	92,250	4.51
Executive	130,000	6.90	164,000	8.02
Purchases, supplies	17,400	0.92	20,500	1.00
Maintainance	72,400	3.84	82,000	4.01
Depreciation	62,000	3.29	74,000	3.62
Building rent	96,000	5.09	102,500	5.01
Sales Commissions	188,440	10.00	204,500	10.00
Insurance
Fire	12,670	0.67	20,500	1.00
Liability	18,200	0.97	20,500	1.00
Utililities	14,100	0.75	15,375	0.75
Taxes
Property	16,600	0.88	18,450	0.90
Payroll	26,520	1.41	41,000	2.00
Miscellaneous	4,610	0.24	10,250	0.50
Total Operating Expenses	1,003,290	53.24	1,172,145	57.32
Income from operations	130,150	6.91	155,355	7.60

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