1 Chapter Three Lecture Notes Additional Budgeting

Transcript:1 Chapter Three Lecture Notes Additional Budgeting:
1 Chapter Three Lecture Notes Additional Budgeting Concepts Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 2 Budgeting Formats Line item or object of expense - e.g., salaries, benefits, supplies, rent, etc. Responsibility Center - units for which individual managers are held accountable, e.g., custodial services, maintenance, public relations, development, ticket sales, etc. Program Budgets include both revenues and expenses - ballet, opera, philharmonic, etc. Generally, both Responsibility Center and Program budgets are supported by line item detail. Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 3 Line Item Operating Budget Revenue Net patient revenue Gift shop revenue Investment revenue on endowment Total revenue Expenses Salaries Supplies Bad debts Interest Rent Total expenses Profit/(loss) $ 97,980,000 120,000 50,000 $ 98,150,000 $ 78,900,000 15,400,000 2,200,000 400,000 3,100,000 $100,000,000 $ (1,850,000) Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 4 Responsibility Center Expense Budget Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 5 Program Budgets Program budgets include both revenue and expenses for the major activities of an organization. Helps managers focus on sources of profits and losses of programs that could be expanded or discontinued. Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 6 Functional Budgets Functional Budgets focus on the major functions performed by an organization. This format is often used to report to outsiders. Note the line item detail. Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 7 Organizations often experience more or less volume than budgeted. Flexible budgets look at expected revenues, expenses, and net income under different volume assumptions. The key to flexible budgeting is the identification of: Fixed Costs - which do not change with volume. Variable Costs - which do change with volume. Flexible budget results are normally shown in a side-by-side columnar format. A flexible budget is a form of "What if?" analysis. Flexible Budget Finkler: Financial Management For Public, Health, And Not-For-Profit Organizations, 3rd Ed. © Pearson Education 2010 8 Flexible Budget Example Charity Church sponsors a three-day youth camp in Bear Mountain Park. Charity provides a $500 grant for the event and collects $130 from each camper. The camp director expects 40 campers to attend and anticipates the following expenses: