Revising and Analyzing an operating budget Attala Co., a division of Jackson Industries (JI), offers consulting services to clients for a fee. JI's corporate management is pleased with the performance of Atttala Co. for the first nine months of the current year and has recommended that Attala Co.'s division manager, Jason Newport, submit a revised forecast for the remaining quarter because the division has exceeded the annual year-to-date plan by 20 percent of operating income. An unexpected increase in billed hour volume over the original plan is the main reason for this gain in income. The original operating budget for the first three quarters for Attala Co. is as follows: (See attatched Image) When comparing the actuals for the first three quarters to the original plan, Newport analyzed the variences and will reflect the following information in his revised forecast for the fourth quarter. The division currently has 25 consultants on staff, 10 management consulting and 15 for EDP consulting, and has hired 3 additional management consultats to start work at the beginning of the fourth quarter to meet the increased client demand. The hourly billing rates for consulting revenues will remain $90 for each management consultant and $75 for each EDP consultant. However, due to the favorable increase in billing hour volume when compared to the plan, the hours for each consultant will be increased by 50 hours pwe quarter. New employees are equally as capable as current employees and their time will be billed at the same rates. The annual budgeted salaries and actual salaries, paid monthly, are $50,000 for a management consultant and 8 percent less for an EDP consultant. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants, but the new consultants will be compensated at the planned rate. The planned salary expense includes provision for employee fringe benefits amounting to 30 percent of the annual salaries; however, the improvement of some corporate-wide employee programs will increase the fringe benefit allocation to 40 percent. The original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. These expenses are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs. Other revenues are derived from temporary rentals and interes income and remain unchanged for the fourth quarter. Administrative expenses are 7 percent below the plan; this 7 percent savings on fourth-quarter expenses will be reflected in the revised plan. Depreciation for the office equipment and computers will stay constant at the projected straight-line rate. Due to the favorable experience for the first three quarters and the division's increased ability to absorb costs, JI corporate management has increased the corporate expense allocation by 50 percent. a. Prepare a revised operating budget for the fourth quarter for Attala Co. that Jason Newport will present to Jackson Industries. Be sure to furnish supporting calculations for all revised revenue and expense amounts. b. Discuss the reason that an organization would prepare a revised forecast. c. Discuss your feelings about the 50 percent increase in corporate expense allocations.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Revising and Analyzing an operating budget Attala Co., a division of Jackson Industries (JI), offers consulting services to clients for a fee. JI's corporate management is pleased with the performance of Atttala Co. for the first nine months of the current year and has recommended that Attala Co.'s division manager, Jason Newport, submit a revised
When comparing the actuals for the first three quarters to the original plan, Newport analyzed the variences and will reflect the following information in his revised forecast for the fourth quarter.
The division currently has 25 consultants on staff, 10 management consulting and 15 for EDP consulting, and has hired 3 additional management consultats to start work at the beginning of the fourth quarter to meet the increased client demand.
The hourly billing rates for consulting revenues will remain $90 for each management consultant and $75 for each EDP consultant. However, due to the favorable increase in billing hour volume when compared to the plan, the hours for each consultant will be increased by 50 hours pwe quarter. New employees are equally as capable as current employees and their time will be billed at the same rates.
The annual budgeted salaries and actual salaries, paid monthly, are $50,000 for a management consultant and 8 percent less for an EDP consultant. Corporate management has approved a merit increase of 10 percent at the beginning of the fourth quarter for all 25 existing consultants, but the new consultants will be compensated at the planned rate.
The planned salary expense includes provision for employee
The original plan assumes a fixed hourly rate for travel and other related expenses for each billing hour of consulting. These expenses are not reimbursed by the client, and the previously determined hourly rate has proven to be adequate to cover these costs.
Other revenues are derived from temporary rentals and interes income and remain unchanged for the fourth quarter.
Administrative expenses are 7 percent below the plan; this 7 percent savings on fourth-quarter expenses will be reflected in the revised plan.
Due to the favorable experience for the first three quarters and the division's increased ability to absorb costs, JI corporate management has increased the corporate expense allocation by 50 percent.
a. Prepare a revised operating budget for the fourth quarter for Attala Co. that Jason Newport will present to Jackson Industries. Be sure to furnish supporting calculations for all revised revenue and expense amounts.
b. Discuss the reason that an organization would prepare a revised forecast.
c. Discuss your feelings about the 50 percent increase in corporate expense allocations.
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