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Gadget Division Budget

Beth

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

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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 significant 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. Their previous budget for this year had several variations between the budgeted estimates and the actual results. 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 must 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.

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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 is from

Since Smart Enterprises inaugurated participative budgeting ten 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. However, some managers use the practice solely to benefit their 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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