Static and Flexible budget
The budget for National Charter School exhibits a flexible budget. This is because the budget is prepared at different levels that are, a budget for 120, 100, and 66 students. Static budgets show a plan for a single level of activity. Static budgets are used to evaluate performance when the budgeted level of activity is the same as the actual results. Static budgets are also prepared when costs are fixed, that is when there are no variable costs (Dubrin, 2008).
Total revenue
The table below shows the total revenue per student excluding grants.
From the table above, it is inherent that the total revenue per student excluding grants amounts to $6,063.06 for the three levels of students.
Total expenses
The table below summarizes the total expenses per student.
From the table above, the total expense increases as the number of students declines. However, total expenses per student reduce as the number of students increases. Further, all the expenses budgeted for are basic and necessary for the smooth running of the school.
Break-even analysis
Break-even analysis helps managers know the perfect level of production. This is the level of production at which the sales revenue covers the cost of production. The cost of production needs to be divided into fixed and variable costs (Dubrin, 2008). The Break-even point is computed below.
Break-even =
Fixed costs
Selling price per unit – Variable cost per unit
458,817.00 = 85.4637
6063.06 – 694.50
From the computations presented above, the break-even number of students the college needs to enroll is 85 students.
Assumptions of break-even analysis
Break-even analysis is based on several assumptions. First, it assumes that costs can be divided into variable and fixed costs. This does not take care of semi-variable costs. Secondly, it assumes that fixed costs remain fixed within a relevant range. Thirdly, it assumes that a linear relationship exists between total revenue and total costs. Finally, break-even analysis assumes that unit costing per student does not change (Dubrin, 2008).
Benefits of budgets
Preparation of budgets helps the management of an organization in various ways. First, the budget makes managers proactive, that is, it enables them to think ahead and plan on how to meet the targets. Secondly, budgets are used during performance reviews. Managers periodically review the performance of an organization based on the budgets. Thirdly, the preparation of budgets enhances teamwork. This is because all departments of an organization are involved in budget preparation. Finally, budgets are control tools. This is because management needs to control expenditures so that they do not exceed budget (Dubrin, 2008).
How budgets are used for control functions
Budgeting is a process of planning and controlling the use of a company’s assets in running business activities. It is a comprehensive process that cuts across various departments in an organization such as in sales, finance, and operations among others. Therefore, budgets help management control the use of the company’s resources in the organization. Also, they form a basis for comparing performance against targets. This keeps targets of management in check (Dubrin, 2008).
Variance analysis
Variance analysis focuses on the difference between the actual and budgeted amounts. It analyzes the total variance between standard and actual results. Variances can either be favorable or unfavorable. Variance analysis has some advantages. First, it helps in performance management, because the management uses results of variance analysis to measure performance against expected results. Secondly, variance analysis improves responsible accounting. Finally, variance analysis encourages management by an exemption, that is, management puts a lot of emphasis on areas with adverse variances. A drawback of this approach is that decisions can be made based on these variances without investigating further into the causes of the variances. This approach points out the variances without giving further information on the cause of the variances (Tutor2u, 2012).
Other suggestions for performance measures
Several other approaches can be used to measure performance. They include the use of EBITDA, organic changes in revenue, and net financial debt among others. These measures focus on financial performance. Performance can also be measured from a marketing and operation perspective. An organization needs to employ more than one method of performance management. This gives a wholesome view of the performance of an organization (Globusz Publishing, 2012). There are several measures of performance. Management should use measures that will be suitable for the organization.
References
Dubrin, A. (2008). Essentials of Management. Unites States of America, South-Western Cengage Learning.
Globusz Publishing: Variance analysis. (2012). Web.
Tutor2u: Variance analysis. (2012). Web.