1. Budgets and Financial Cost Analysis chapter 13
Hurd PP, AU CE check, chapter 13

2. Budgets Budgets serve as a financial plan for the year.
Budgets reflect the priorities of an agency.
Budgets also reflect the effectiveness and efficiency of the use of resources in an organization.
Without a strong understanding of budgets, a manager can make uninformed decisions and encounter a host of problems.

3. The Budget Cycle Step 1: Develop a budget calendar.
Step 2: Develop a departmental work plan.
Step 3: Develop an expense budget.
Step 4: Develop a revenue budget.
Step 5: Modify and finalize the budget.
Step 6: Present, defend, and seek approval for the budget.

4. Cutback Management
Cutback management involves having to reduce an approved budget because of unforeseen factors, such as economic decline.
Cutbacks can be made in three main areas:
Workforce reduction
Work redesign
Systematic change

5. Politics of Cutbacks Cutbacks often result in agency politics.
Political aspects of the cutback process include the following:
Reactions from special interest groups
Council or board elections
City or regional priorities

6. Types of Budgets Capital budgets: Capital improvement plans
Operating budgets
Line-item budgets
Object classification budgets
Program budgets
Performance budgets

7. Approaches to Budgeting
Zero-based budgeting starts from scratch each budget cycle. All programs are treated equally, and the process focuses on how a program meets organizational objectives. However, this type of budgeting is time consuming and can result in politicking.
Incremental budgeting is based on the previous year’s figures. The process is simple to learn and relatively quick, but it is not outcome focused. In this type of budgeting, it is not easy to add new activities or change current activities.
(continued)

8. Approaches to Budgeting (continued)
Activity-based costing is budgeting that attempts to assign and identify the true cost of providing a service. This proves difficult to do in a service-based environment.
Multiyear budgeting encompasses two to five years. This decreases the time spent on budgeting, integrates financial and strategic planning, and reduces incrementalism. However, this process makes it difficult to project into the future, can be very time consuming when first done, and lacks the ability to respond to environmental changes.

9. Purchasing Petty cash Purchasing procedures Bids Invitation for bid
Request for proposal
Request for quotation

10. Financial Analysis and Reporting
Break-even analysis
Balance sheets
Income statements
Cash-flow statements
Budget statements

11. Break-Even Analysis BE = F / (P − V) BE = break-even point
F = fixed costs
P = selling price per unit
V = variable costs per unit

12. Table 13.5 Sample Balance Sheet
Assets
Liabilities
Current assets
Current liabilities
Cash and investments
$3,546,975
Accounts payable
$25,729
Accounts receivable
$1,243,785
Long-term debt
Total current assets
$4,790,760
Mortgage
$376,971
Total liabilities
$402,700
(continued)

13. Table 13.5 Sample Balance Sheet (continued)
Assets
Liabilities
Fixed assets
Equity
$5,175,923
Store fixtures
$243,876
Office equipment
$7,659
Rafting inventory
$543,987
Total fixed assets
$787,863
Total assets
$5,578,623
Total liabilities and equities

14. Table 13.6 Sample Income Statement
Revenues
Trips
$12,320
Concessions
$2,486
Store receipts
$3,345
Total revenues
$18,151
(continued)

15. Table 13.6 Sample Income Statement (continued)
Expenditures
Staff
$9,562
Supplies
$527
Utilities
$452
Mortgage
$2,342
Marketing
$732
Maintenance
$622
Total expenditures
$14,237
Net revenue
$3,914

16. Table 13.7 Sample Cash-Flow Statement
Feb.
Mar.
Apr.
May
June
July
Total
Net revenues
$1,276
$4,985
$8,076
$12,486
$16,958
$18,151
$61,932
Expenses
$4,978
$6,890
$7,013
$9,213
$11,345
$14,237
$53,676
Monthly cash flow
$(3,702)
$(1,905)
$1,063
$3,273
$5,613
$3,914
Cumulative cash flow
$(5,607)
$(4,544)
$(1,271)
$4,342
$8,256
Cash position at beginning of month
$12,000
$8,298
$6,393
$7,456
$10,729
$16,342
Cash position at end of month
$20,256
Numbers in parentheses indicate a negative balance.

17. Table 13.8 Sample Budget Statement
Actual
Budget
Committed %
Balance
Revenues
Trips
$42,113
$72,500 $0
58.1%
$30,387
Concessions
$8,671
$14,000
61.9%
$5,329
Store receipts
$11,148
$20,000
55.7%
$8,852
Total revenues
$61,932
$106,500
58.2%
$44,568
(continued)

18. Table 13.8 Sample Budget Statement (continued)
Actual
Budget
Committed %
Balance
Expenditures
Staff
$35,963
$52,100
$1,500
71.9%
$14,637
Supplies
$2,147
$3,100 $0
69.3%
$953
Utilities
$1,610
$2,430
66.3%
$820
Mortgage
$8,051
$16,000
50.3%
$7,949
Marketing
$2,684
$4,300
$500
74.0%
$1,116
Maintenance
$3,221
74.9%
$1,079
Total expenditures
$53,676
$82,230
$2,000
67.7%
$26,554

19. Key Financial Indicators
Liquidity ratios
Activity ratios
Profitability ratios