Which Of The Following Budgets Is Not Required In A Service Organization?

Learning Objective

1. Draw operating budgets for merchandising, service, and non-for-profit organizations.

The examples used thus far to depict a chief budget take been limited to manufacturing companies. Manufacturing companies tend to take comprehensive operating budgets and therefore serve as a good starting point in learning how to develop a principal budget. However, all types of organizations use operating budgets.

Merchandising Organizations

Question: What do operating budgets await like for merchandising organizations?

Reply: Merchandising organizations typically purchase finished goods and sell them to retail or wholesale customers. Because merchandisers exercise not produce goods, they practise not utilize production or product-related budgets.

Figure 9.xiii "Master Upkeep Schedules for a Merchandising Organization" provides an overview of the master budget schedules for a merchandising organization. If you compare this diagram with Figure 9.1 "Chief Upkeep Schedules" (master budget schedules for a manufacturing company), you will find that production and product-related budgets are non applicable to merchandising organizations. Direct materials are not needed, and all labor and overhead costs are included in the selling and administrative budget.

Figure 9.13 Primary Upkeep Schedules for a Merchandising Organisation

The most important attribute of budgeting for merchandising organizations is the merchandise purchases budget. The merchandise purchases upkeep estimates the units of trade to exist purchased and the toll per unit. Much like the production budget for a manufacturing company, the merchandise purchases budget estimates units to be purchased (instead of units to be produced) and is based on sales projections, as well every bit an approximate of desired ending merchandise inventory less beginning merchandise inventory.

Service Organizations

Question: What practice operating budgets look like for service organizations?

Answer: Service organizations, such equally architectural and accounting firms, provide services rather than tangible appurtenances. These organizations do non have raw materials, finished goods, or merchandise inventories, and therefore they do not take production or trade purchases budgets. Instead, the focus is on projected sales revenue from services provided and the labor necessary to achieve sales revenue projections. Service organizations must constantly judge services to be provided and make sure labor forcefulness resource are available to run into customer demand.

Not-for-Turn a profit Organizations

Question: Not-for-profit organizations, such as school districts and charitable organizations, also utilize budgets for planning and control purposes. The budgeting process in about not-for-profit organizations is critical because the approved upkeep often serves every bit the legal dominance for expenditures. What do operating budgets look like for not-for-profit organizations?

Answer: Considering not-for-profit organizations are very diverse in nature—for example, some provide a service, while others collect money to aid victims of natural disasters or to promote medical research—it is hard to generalize virtually which master budget components apply and which do not. However, with an understanding of the budget components used by manufacturing, merchandising, and service organizations, 1 can institute a budgeting process for virtually whatsoever not-for-turn a profit organization. For an instance of how one not-for-profit organization goes almost the budgeting process, read Notation 9.35 "Business organisation in Action 9.three".

Business organisation in Activeness 9.3

Budgeting at a Non-for-Profit Organization

Yearly, a modest non-for-profit symphony in California establishes an operating budget with revenues totaling $200,000. The symphony's treasurer oversees the budget committee, which is made upwardly of three board members. The budget committee is responsible for creating, approving, and monitoring the budget.

The upkeep committee begins the budgeting procedure past reviewing information from the year before. All board members and role staff are given spreadsheets showing final year's results and are asked to provide input for the next budget period. For example, the committee responsible for ticket sales estimates sales revenue based on expected ticket sales times the average sales toll. Anticipated increases in sales cost are considered in the sales budget.

Expenses are also budgeted based on last year'southward actual results. Those requesting increases in approaching expenditures must justify them. Once revenues and expenses are established for the next budget period, the bookkeeper enters the information using QuickBooks software and prints a preliminary budget report, which the budget committee reviews. Once the budget commission has balanced the budget, reviewed it for reasonableness, and approved information technology, it goes to the board of directors for blessing.

The control stage of the budgeting process requires that all expenditures be in accordance with the budget. Whatsoever expenditure exceeding the upkeep by more than $25 must exist canonical by the lath of directors. A financial report comparing actual revenues and expenditures with approaching revenues and expenditures (produced using QuickBooks software) is submitted to the board of directors monthly.

Key Takeaway

• Merchandising organizations practise non produce goods, and therefore exercise non have production or production-related budgets. Instead, merchandisers set a trade purchases budget. Service companies practise not have production or merchandise purchases budgets. Instead, service organizations focus on projected sales and labor costs. Not-for-profit organizations as well use budgets for planning and control purposes. The format depends on the service existence provided.

Review Problem 9.8

Patel and Company performs accounting services for its customers. The company had the following net income for the most contempo year:

The following information was gathered to help prepare adjacent twelvemonth'due south budgeted income statement:

• Service revenue will increment x percent (e.g., beginning quarter service revenue for next year will be 10 percent higher than the kickoff quarter shown previously).
• Managing director and staff salaries will increase v percentage, and a new staff auditor volition be hired at the start of the second quarter at a quarterly salary of $12,000.
• Authoritative staff wages will increment ten per centum.
• Supplies and rent volition remain the aforementioned.
• Utilities will increase 5 per centum.
• Insurance volition increase 25 percentage.
• Miscellaneous expenses will decrease 10 per centum.

Set up a quarterly budgeted income statement for Patel and Visitor; include a column summarizing the year.

Solution to Review Trouble 9.8

*First quarter upkeep of $148,500 = $135,000 in concluding year'southward first quarter revenue × (1 + .ten).**Quarterly budget of $63,000 = $60,000 in final yr's quarterly salaries × (1 + .05).

***Commencement quarter budget of $26,250 = $25,000 in last year's first quarter salaries × (1 + .05). Second, third, and quaternary quarter budgets include newly hired staff at $12,000 a quarter.

^Quarterly upkeep of $11,000 = $10,000 in last twelvemonth'southward quarterly budget × (one + .10).

^^ No alter from final year.

^^^ Quarterly budget of $2,100 = $2,000 in last year's quarterly budget × (1 + .05).

^@ Quarterly budget of $17,500 = $14,000 in terminal yr's quarterly budget × (one + .25).

^@@ Quarterly upkeep of $5,850 = $6,500 in last twelvemonth'south quarterly budget × (1 – .x).

Source: https://courses.lumenlearning.com/acctmgrs/chapter/9-4-budgeting-in-nonmanufacturing-organizations/

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