Budgeting and Its Advantages - Assignment Example

The paper "Budgeting and Its Advantages" is a worthy example of an assignment on finance and accounting. The paper below approaches to explain the Budgeting and its advantages. It also aims to explore various measures for performance analysis on the basis of budgeting including the variance analysis. The budget of a charter school is discussed and analyzed in detail in the following paper.

Analysis of the Charter School Budget

Flexible budgets are the budgets that are prepared on different levels of activity and changed throughout the year as per the actual results, while static budgets are prepared once in a period for one level of activity only and cannot be changed. (Drury, 2004) Since the given budget is prepared for three different levels of activity, it can easily be said that it is a flexible budget.

As per the given data, the total revenue per student excluding grants comes out to be $6,063. The total expenses per student as given in the question are $694.5. This amount represents the variable expenses. Total fixed expenses (fixed costs) per student vary with the level of activity. See the workings below for the calculation of revenue and costs per student.

All the expenses shown in the budget are necessary for the smooth and efficient running of the school. However, the management can try and cut the costs where possible. The breakeven number of students is computed as follows (grants and startup costs are ignored):

The above calculations show that in order to reach a breakeven (no profit / no loss) point, the school must have at least 85 students. However, this can be changed if the actual costs are less than or greater than the budgeted costs. Following are the workings done for the calculation of break-even point:

Methods for Performance Analysis

In order to effectively measure the performance of a company against the budgets and forecasts a company used various methods including variance analysis, earned value management (which is used to measure the actual performance of a project against its planned performance), etc. (Griffin, 2008) The most effective and efficient of all such techniques is variance analysis because for performing variance analysis a company only requires the budgeted figures and actual figures. However for earned value management metrics / earned values also need to be calculated. (Matz & Usry, 1980)

Variance analysis also helps in identifying the performance backlogs and factors that consistently contribute to affecting the performance of the company. Along with being easy, variance analysis also helps in saving the costs of the company and showing the management critical mistakes and unrealistic assumptions made while making the budgets and plans. One of the biggest problems for conducting this technique is the time required for the calculation of actual figures. (Drury, 2004)