Business Memo The importance of budgeting I developed a spreadsheet including three budget schedules of Spiffy Shade Corporation, which is Production Budget, Direct-labor Budget, and Manufacturing Over-head Budget. According to the budget schedules, the company can plan ahead and meet the needs of demand. For example, form the Production Budget, the company can plan how many sunglasses should be produced for each month and quarter. Budget can also facilitating communication and coordination, and allocate resources.
For example, from the schedules, the company can allocate the funds to different departments based on the budget. It can improve the correctness of the company’s decision. In addition, budgeting can control profit and operations, for instance, the company can compare the actual sales for a period against its budget sales. This can help the company evaluate the firm’s effectiveness in selling sunglasses. Thus to provide incentives for people to perform well and to make maximum profit for the company. Results of sensitivity analysis
I created three scenarios to the original data case. In scenario 1, I make sales volume increased by 10%, compared with making sales volume fell by 10%, and it turns out that 10% increase in sales units also increase the production cost, direct-labor cost and manufacturing over-head. As well, 10% decrease in sales will cause decreases in the company’s cost. In scenario2, the company changes the policy of the end-of-month inventory. It is obvious that it almost make no changes in all of the three kinds of costs.
So a new inventory policy can be carried out to not increasing the costs and at the same time meet the market needs. In scenario3, I assume that employee medical insurance increases 5 times and not install the new equipment. From the budget schedules, it shows us that the direct-labor cost increases fiercely, but the manufacturing cost remains the same level. It indicated that new equipment helps a lot decrease the direct-labor hour and the company’s direct-labor cost. Date used in other master budget component Other master budget components include direct-material budget, cash budget, nd so on. These budgets will also need to use the data of the production data and direct-labor data. For example, for the direct-material budget, it will also need the data of units to be produced, which is the data of the production budget, to calculate the raw material required for production. Another example is the cash disbursements budget, in order to estimate the total of other cash disbursement, the direct labor cost data is needed, which is form direct-labor budget. From above, the data form these two budgets that I developed is also needed in other master budget components.