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Budgeting is an important internal activity. Preparing budgets involves forecasting sales and estimating costs. For this SLP, you will prepare a flexible budget for next year for the company of your choice. The budget needs to be realistic and based on corporate and economic trends.
Companies prepare budgets based on absorption and/or variable costing. Due to lack of information, we're limiting our budgeting to the absorption approach. Don't forget that the presentation of the information is important.
Set up the flexible budget showing three different growth rates. Use the financial statements and do research on the company of your choice to determine growth trends. Explain your estimates and prepare a flexible budget showing the low, the average, and the high revenues and adjust all other line items in the income statement to reflect the revised revenue assumptions.
• What is the growth rate in sales for the past three years?
• Are revenues and expenses growing at the same rate? What was the experience in the past few years?
• What is the current growth rate in the economy?
• How are the competitors doing?
• Current interest rates and tax burdens.
Discuss the implications of the information after you have completed the flexible budget.
• How does the flexible budget differ from a static budget?
• Budgets are used for planning and control. Discuss how you can use the information derived for these two purposes?
• Comment on using this information for performance evaluations.
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Budgeting is a significant internal process which is followed by various activities to enable organization to prepare budget. A budget is quantifiable plan used as tool for deciding future course of actions of the enterprise to attain desired objectives.
Flexible budget is a process where expenses can be adjusted as per required level of unit which can be output or growth rate etc. and it enable the entity to provide budget for comparison with resulted unit level.
Mainly, expenses are qualified as variable, semi-variable and fixed costs which are then adjusted with change in required level. For this purpose of assignment, I have chosen to analyze and prepare flexible budget of Starbucks Corporation. Starbucks Corporation founded in 1985 and based in Seattle, Washington is a company renowned worldwide and operates as retailer, roaster and marketer of specialty coffee