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BUS 5110 Discussion Forum Unit 5 submission

Managerial Accounting (University of the People)

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“The budgeted Income statement is a resourceful tool for management to project the financial
performance and profitability of the entity. It sets the vision into numbers and serves as the basis of the
implementation of various strategies at all levels in the entity. With the exercise of managerial expertise
and due care in making assumptions and estimates, it can reduce the possibilities of inaccuracies and can
be utilised in planning the future investing and financing decisions effectively” (Thakur, M).
In Dom Inno Builders, at the end of each year the budget meeting take place to determine the budget for
the upcoming year with the presence of branch manager, sales manager, operation manager, CFO & CEO.
According to Heisinger & Hoyle (n.d.) Successful companies approach budgeting from the bottom up.
This requires the involvement of various employees within the organization, not just upper management.
Lower-level employees often know more about their functional areas than upper management, and they
can be an excellent source of information for budgeting purposes. Although getting input from employees
throughout the organization can be time consuming, this approach tends to increase employee motivation
and acceptance of the budget.
The Budgeted Income statement can be prepared quarterly or yearly. However, it is advisable to prepare
the current year financial projections at quarterly intervals to monitor the actual performance as compared
to budgeted numbers at the end of every quarter. It is merely the combination of Sales/Revenue Budget,
Cost of Goods Sold Budget, Operating expense budget and cash budget.

Dom Inno Builders Income Statement

Quarter 1 Quarter 3 Quarter 3 Quarter 4
Revenue 102000 135000 150000 140000
Cost to Goods
Sold 40000 55000 55000 55000
Gross Profit 62000 80000 95000 85000
Expenses
Salaries and
Benefits 26000 32000 35000 30000
Rent and
Overhead 10000 10000 10000 10000
Depreciation and
Amortization 18000 18000 18000 18000
Interest 2500 2500 2500 2500
Other 8800 8800 8800 8800
Total Expenses 65300 71300 74300 69300
Earning Before
Tax -3300 8700 20700 15700
Taxes 1001 2144 4231 4231
Net Earnings -4301 6556 16469 11469

Gross profit comes by subtracting revenue from the cost to goods sold. Total expenses is the summation
of the salaries, rent, depreciation, interest and other expenses. Difference between gross profit and total
expenses is the earning before tax. We can get net earnings by subtracting earning before taxes with taxes.
In the table we see Dom Inno builders have negative net earnings in the first quarter bit positive in the rest
of the year and 3rd quarter they are expecting highest net earnings.
Reference:

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Thakur, M. Budgeted Income Statement

Retrieved from https://www.wallstreetmojo.com/budgeted-income-statement/
Heisinger, K., & Hoyle, J. B. (n.d.). Accounting for Managers.
Retrieved from https://2012books.lardbucket.org/books/accounting-for-managers/s13-how-are-operating-
budgets-crea.html

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