Baker, J.J. & Baker, R.W., Budgets Static Essay

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Baker, J.J. & Baker, R.W., Budgets

Static budgets are used to make sales, revenue, and expense forecasts for companies with predictable expense and sales patterns. Expense and revenue figures in static budgets do not change, regardless of the actual level of activity. Very often, therefore, there are deviations between actual amounts and budgeted amounts -- this difference is referred to as static budget variance.

In this case: budgeted sales (output) = 25,000 (2500 @ $10)

Actual sales (output) = (24,550) (2445 @ $10)

Static budget variance = $450

Net revenues = actual procedures done x budgeted cost

= $24,550

Net expenses = $1.85x 2455

= $4,546

Revenues -- expenses = $24,550 - $4,546

= $20,004

Part Two

There are four major methods of reporting cash flows and evaluating the profitability of capital projects:

The Payback Method: this technique determines the profitability of a project based on the amount of time it would take to generate adequate cash flows to recoup the initial investment cost. The shorter the amount of time taken to recover the same, the more profitable a project is (Graham & Smart, 2011).

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The Average Rate of Return: the ARR determines a project's viability by totaling its generated cash flows over the years of investment, and dividing the same by the number of years.

The Net Present Value: this technique determines a project's viability based on the discounted sum of cash flows generated from it….....

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