2 emails on business decisions

1. Email and reference
The president has shown some interest in your suggestion for a budget and has done some research and is asking you about a flexible budget system. Explain to him how a flexible budget works and the advantages of adopting this system for your company.

Compose a short email – 1 paragraph in email format because the president it too busy to read anything longer than that – proposing a flexible budget system for your company.

2. Email and reference
You have just taken a job at a manufacturing company and have discovered that they do not use standard cost and variance analysis.

Compose a short email – 1 paragraph in email format because the president it too busy to read anything longer than that – proposing a standard cost and variance analysis procedure for your company.

ANSWER

To: The President

Subject: The Flexible Budget System

The flexible budget system works in contrast to the static budget system. Rather than preparing a budget at the beginning of the year and sticking to it until time to make another the following year, a flexible budget applies a series of smaller budgets prepared periodically in the course of a fiscal year. A flexible budget puts into consideration changes in sales, overhead costs and many other changes that can occur and are flexible enough to adapt to these changes. One application example would be a situation where sales increases and a flexible budget adjusts to increase spending on marketing with a target to take advantage of unexpected increase revenues due to sales (Frew et al., 2010). The company stands to gain more from a flexible budget system rather than a static one in continuous improvement throughout a fiscal year, better prioritizing and effective planning.

Kind regards,

(Name)

To: The President

Subject: Proposition of Standard Cost and Variance Analysis Procedure

Standard cost and variance analysis procedure are business tools designed to help manage when it comes to controlling costs. A good example is when the company budgets a given amount of money for labour costs within a year, for instance, the amount could be $x. This estimation could be a historical trend analysis or an estimation by a financial engineer. However, within the year, the cost of labour is not $x as planned but $y and the company is confronted with a decision on whether or not it can control these changes in cost. The comparison between $x and $y is variance analysis and could either be favourable variance or unfavourable variance. The two principles could be advantageous to the company in terms of managing overhead costs, labour costs and also direct material costs (Dopuch et al., 1967).

Kind regards,

(Name)

References

Dopuch, N., Birnberg, J. G., & Demski, J. (1967). An extension of standard cost variance analysis. The Accounting Review, 42(3), 526-536.

Frew, J., Olson, R., & Pelton, M. L. (2010). Creating a Flexible Budget Process. Redbook, 96.