The charter school budget is a flexible budget. A flexible budget is one that accommodates changes in the inflation rate, the activity levels, analyze capacity utilization, and can be adjusted to reflect changes in price. In this case of the charter school, the budget shows the costs and expenses for the various activity levels ranging from 120-66 students.
The total revenue per student for the 120 students is 6063. This is given by the total revenue of 727567 divided by 120 students. For the 100 students, the total revenue per student is 5816.07 given by total revenue 581607 divided by 100. As for the 66 students, the total revenue per student is 6063 given by 400162/66.
The total expense per student for the 120 students is 4158 given by 542157/120 while for the 100 students is 5286.27 given by 528627/100.for the 66 students it is 7646 that is given by 504654/66.
The expenses for the school seem necessary. This is explained by the allocation of the expenses to various activities. For instance, the school cannot do without workers, and thus payroll and salaries costs have to be incurred. In addition, there is the need to have access to the internet to assist students search for information online. As such, internet costs are incurred. Moreover, filed trips are necessary to connect the student’s skills with practical and thus field trip costs have to be taken off.
The school is viable tough its viability depends on the number of students in excess of 66 students. That is, having 66 students in the school will lead to loss since expenses exceed revenues. However, for the 100 and 120 students, the school makes a profit since the total revenues exceed the total expenses even in the absence of grants. To break even, must the school to balance or equal the total expenses to the total revenue excluding the grants and startup costs. In this case, therefore, the total revenue for 120,100 and 66 students will be 727567,606306 and 400162 respectively. The total expense will be 542157,528267 and 504654 respectively.
Optimal number of students
Comparing between 100 and 120 students, we can derive, through interpolation method;
100-13890/121261*120=86.25
=87 students
That is; 542157-528267=13890
727567-606306=121261
Benefits of preparing this budget
The budget will aid in planning and control of the school. That is; it will aid in the control of costs so that they do not go overboard and also help the school management project their future revenues and benefits. In addition, the budget will assist in aligning and streamlining the various departments in the school, allocating the necessary funds to those departments and thus ensure their efficiency.
Moreover, the budget will assist the school in determining the activity level that is necessary for the school to be a going concern, and below which level the school cannot operate. For instance, the breakeven analysis indicates to the school the minimum number of students that the school requires for it to operate under no losses.
Discuss how this budget is likely to be used for the control function
The budget will be used for the control function in terms of controlling costs. The school knows how much it requires for every activity since the costs and revenues are allocated per student. This will help the school in staying within the predetermined costs thus controlling the costs.
In addition, the school has set the number of teachers it requires as per the student population. Any increase in the student’s population will call for an increase in the teacher’s numbers determined by the already set ratio, thus ensuring control of the students-teachers ratio.
Variance analysis and its advantages and disadvantages
Variance analysis can aid in detecting and determination of activities that frequently go above the planned budget. This is because; variance analysis enables an individual to compare between the expected and the actual costs/revenues. Some activities that always deviate from their planned costs are, therefore, identified and further investigated to account for the deviations. On the other hand, a variance analysis is limited in that it may take time to conduct such an analysis and realize unfavorable results. In any case, a variance analysis is done after results have been obtained. This may be too late to rectify mistakes done and thus cause a loss to an individual or firm.
In addition, though the analysis identifies where the deviations occurred, it never tells why the variances occurred and, therefore, more work is done to identify the sources of the variances. Lastly, the variance report only shows the current effects and not the future effects of the action that an individual or firm has already taken. For instance, reducing the number of workers in a firm may increase profitability but the future impacts may be adverse. The impact may be lowered productivity, as a result, of overworking the employees left behind.
Complementary measure to variance analysis
Three-sigma can be used to complement variance analysis. Such a measure will determine the range within which results should lie.
References
Agrawal, N. K. (2010). Principles of Management Accounting, Global Media (read chapter 3), from library portal.
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011). Accounting Principles: A Business Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 108-113, 128-134, 165-169 and 181-183. http://textbookequity.com/oct/Textbooks/TBQ_PA_Accounting_managerial.pdf
Walther, L.M. (2010). Principles of Accounting: A Complete Online Text, chapters 21 and 22 (the section titled Traditional variance calculations for monitor cost and efficiency). Retrieved from http://www.principlesofaccounting.com/
Accounting for Management (n.d.). Target Costing Approach to Pricing. Retrieved from http://www.accountingformanagement.com/target_costing_pricing_ products_and_services.htm
