Project 4
1. Project 4
1.3. Page 3
Project 4: Budgeting
Time to Practise
It is necessary to be aware of how various activities may affect a business and, therefore, require changes to the budget plans.
The case studies that follow will challenge you to identify how the budget is affected in each case. Complete each case study question, and check your answer.
- A large school has a master budget based on the amount of money received from the provincial government per student. Each department in the school has drawn up its own budget for the year. What would each department need to know before creating its budget?
Each department would look at what it spent in the last year, the number of students expected this year, its needs for the upcoming year, and the total amount of money it is entitled to this year. In that way, it would be able to estimate what it requires. For example, if the physical education department had purchased team uniforms last year, it would not require them this year, unless other sports equipment is needed.
- Company A has established a budget for the upcoming year. During the second month of the budget, Company B establishes a competitive business in the same area. What effect might this new business have on Company A's budget?
Answers may vary. A sample answer is given.
Company A would have to revise its budget. Perhaps its sales would decrease. Perhaps it would want to increase its advertising budget to further promote the business. If Company A is selling a product or service, perhaps it would have to reduce its prices because of the increased competition. Company A really will not know the effects of Company B until the end of the fiscal year, but Company A needs to prepare for the changes and revise its budget accordingly.
- After establishing the budget for the year, Company A discovers that it is eligible for a government grant in the amount of $100 000. What effect would this have on the budget?
Company A would want to revise its budget to take into consideration this increased capital. The company would likely distribute this money among departments to increase department budget lines. Or perhaps Company A would use the funds to pay off an outstanding mortgage with the bank or some other liability.