Budget proposal - Term Paper Example

Section 1. Rationale In line with the corporate goal of XYZ Spa and Body Massage Parlor to keep track of its profit this quarter of the year, this budget proposal will specifically determine the needed overhead costs. This is very important in order that the management will be able to keep track of the expenses involved and the probable projection of the revenue that needed to be targeted. In line with this, the management requires the accounting department to submit a simple budget proposal showing the projected overhead costs of the company at different level of activities.

Section 2. Background XYZ Spa and Massage Parlor has recently formulated strategic moves in order to project and increase its revenue. On January, the management specifically appointed the marketing department to formulate marketing activities that will help enhance the current revenue of company. Optimistic about the impact of this strategy, there is a need to plan ahead of time on the needed budget for the operation as the marketing strategy will help enhance revenue just in case if it is effective for the customers.

From the past trend of the company for its three branches, marketing strategy has proven to be effective. Last year, it contributed about 20% of the revenue for the whole year. The management is quiet satisfied about this knowing that there are other competitors and with this, the company has significantly viewed its competitive edge through marketing strategy. This proposal is in line with the great concern of the CEO to generate budget plan on the overhead costs prior to setting significant revenue and just to be able to adjust cost of the final service offering.

This is essential information knowing that the company has also to compete with the current pricing strategy that competitions are setting in the market. Section 3. Projected Budget Shown in Table 1 below is the proposed flexible budget of XYZ Spa and Body Massage Parlor for its three main branches. Included in the budget proposal are variable overhead costs and fixed overhead costs. The management in general is concerned about the total overhead cost needed for the entire operation under different level of activity based on customers’ visits.

However, it is also important to show in details the specific components of both variable and fixed overhead costs prior to sound decision-making process of the management (Garrison & Noreen, 2000; Cross & Richey, 1998; Fess & Warren, 1984). The basic components of variable overhead costs shown in Table 1 are spa and body massage supplies, promotional incentives for the customers, and electricity (variable). On the other hand, the basic components of fixed overhead costs are wages and salaries of staffs, rent, insurance, and utilities other than electricity.

Based on the current trend and economic consideration of the inflation rate, the cost of spa and body massage supplies per customer’s visit is $1.75. Incorporating the management’s marketing strategy with its actual service, it is important to have specific budget of $5.00 per customer on promotional incentives. This is to ensure more customers to avail of the services offered by the company at a specific limited time. This promotional activity and even the budget plan can be good only for one month but it can be extended for the entire quarter depending on the initial