budgets(matter)

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Budgets and Budgetary control

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M.L.Dahanukar College of commerce

Budgets and Budgetary Control

.a. An itemized summary of estimated or intended expenditures for a given period along withproposals for financing them:submitted the annual budget to Congress.

b. A systematic plan for the expenditure of a usually fixed resource, such as money or time, during agiven period:A new car will not be part of our budget this year.

c. The total sum of money allocated for a particular purpose or period of time: a project with anannual budget of five million dollars.

d. To plan in advance the expenditure of: needed help budgeting our income; budgeted my time

wisely.

e. To enter or account for in a budget:forgot to budget the car payments.

To make or use a budget.

e. Of or relating to a budget: budget items approved by Congress.

f. Appropriate for a restricted budget; inexpensive: a budget car; budget meals.

Budget : Definition

CIMA has defined budget as A financial and /or quantitative statement , prepared and approved

prior to a defined period of time, of the policy to be pursued during that period for the purpose of

attaining a given objective .It may include income,expenditure and the employement of capital.

An Analysis of the above definition reveals the following features of a Budget.

1. Budget is a financial and /or quantitative statement,

2. Prepared and approved prior to a defined period of time,

3. Of the policy to be pursued during that period ,

4. For the purpose of attaining a given objectives.

Budget is thus a target fixed in terms of rupees or quantities or both .This target must be fixed in

advance . The budget must clearly state the policies to be pursued for achieving the targets.


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Purpose

Budget helps to aid the planning of actual operations by forcing managers to consider how

the conditions might change and what steps should be taken now and by encouraging

managers to consider problems before they arise. It also helps co-ordinate the activities of

the organization by compelling managers to examine relationships between their own

operation and those of other departments. Other essentials of budget include:

To control resources

To communicate plans to various responsibility center managers. To motivate managers to strive to achieve budget goals.

To evaluate the performance of managers

To provide visibility into the company's performance

For accountability

In summary, the purpose of budgeting is tools:

1. tools provide a forecast of revenues and expenditures, that is, construct a model of

how a business might perform financially if certain strategies, events and plans are

carried out.

2. Tools enable the actual financial operation of the business to be measured againstthe forecast.

3. Lastly,tools establish the cost constraint for aproject, program, oroperation.
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Types of BudgetINTRODUCTION

Depending upon the purpose that a budget is expected to serve and the requirements of the

organisation , budgets are classified into several types on the basis of coverage , capacity and

conditions.

The followings chart sums up the different types of Budgets.


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1. Coverage budget

Functional budget

Thecostandincomeplancreated for a particularprocessordepartmentoperatingwithin

abusiness. For example, a functional budget for themanufactureof aproduct linemight

includeestimated costsofproduction,marketing,sales,labor,equipmentandmaterials, as

well as projected sales income.

Master budget

A master budget refers to a summary of company's plans that set targets for

production, expenses, sales, financing activities and distribution. It helps a

company in setting the spending limits and tracking the expenses.

2. Capacity budget

Fixed budget

Afixed budgetis a financial plan that does not change through the budget period,

irrespective of any changes from the plan in actual activity levels experienced

A fixed budget is one that is drafted on the basis of specific criteria without any provision

for any changes at any point during the period of time covered by the budget. The budget

lets those involved know how much they have to spend during a given time frame,

regardless of any eventualities such as a slump in sales or increased profits.

Flexible budget

A flexible budget is a budget where there is room for change. In these budgets, moneyfrom one line can be moved to another if one expense ends up being more than expected.

3. Conditions

Basic

CIMA had defined basic budget asA budget which is established of use unaltered over

a long period of time. Thus it is an idea budget under the most favourable business

conditions . such budget may be useful to the top management for long term strategic

planning , but it is not useful as a tool of cost control in the short run.

Current budget

CIMA has defined current budget asA budget which is established for use overa shortperiod of time and is related to current conditions . this is based on current business

conditions and hence its targets are practical .such budget can act as a powerful incentive

for the executives to make efforts to achieve the targets.
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Basic concepts relating to budgetAccording

to ICAI

Budget: It is statement of an estimated performance to be achieved in given time,

expressed in currency value or quantity or both

Budget centre: A section of an Organization for which separate budget can be prepared

and control exercised.

Budgetary control:Guiding and regulation activities with a view to attaining predetermined

objectives ,effectively and efficiently.

Budget manual :the budget manual is a schedule , document or booklet which shows in

written forms the budgeting organisation and procedures.

Budget period :the period of time for which a budget is prepared and it may be a year,

quarter or a month.

Components of budgetary control system :

Physical budget

Those budgets which contain information in terms of physical units about sales,

production etc.for example quantity of sales, quantity of production ,inventory ,and manpower budgets are physical budgets.

Cost budgets

Budgets which provide cost information in respect of manufacturing ,

selling,administration etc .for example manufacturing costs , selling costs,

administration cost , and research and development cost budgets are cost budgets.

Profit budget

A budget which enables in the ascertainment of profits for examples sales budget ,

profit and loss budget etc.

Financial budgets

A budget which facilitates in ascertaining the financial position of a concern for

examples cash budget , capital expenditure budget ,budgeted balance sheet etc.


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Objectives of budgeting are Planning, Directing

and Controlling.

Functional budgetsbudgets which relate to the individual functions in an organisation are

known as functional budgets . for example , purchase budget, sales budget, budget, plant

utilisation budget and cash budget.

Master budgetit a consolidated summary of the various functional budgets .it serves as the

basis upon which budgeted P&L A/c and forecasted balance sheet are built up.

Long term budgetsthe which are prepared for periods longer than a year are called long

term budgets .such budgets are helpful in business forecasting and forward planning .capitalexpenditure budget and research and development budget are examples of long term budgets.

Short term budgetsBudgets which are prepared for period less than a year are known as

short term budgets . Cash budget is an example of short term budget .such types of budgets are

prepared in cases where a specific action has to be immediately taken to be bring any variation

under control, as in cash budgets.

Basic budgetA budget which remains unaltered over a long period of time is called basic

budget.

Current budgetsA budget which is established for use over a short period of time and is

related to the current conditions is called current budget.

Fixed budget-According to chartered Institute of management Accounts of England , a fixed

budget is a budget designed to remain unchanged irrespective of the level of activity actuall

attained

Flexible budget- According to chartered Institute of management Accounts of England , a

flexible budget is defined as a budget which by recognizing the difference between fixed ,

semi variable and variable costs is designed to change in relation to the level of activity of

activity attained.


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The Importance of Budgeting

Helps individual to save to purchase for items needed, thus reducing the use of credit

Enable an individual to live within his income

One way to overcome financial tense in family due to financial matters

Helps to keep records for items that are taxable for the purpose of income tax

Enable the individual to control and record expenses

Enable specific financial goals to be achieved

Helps individual to be prepared for financial emergencies

Assist the individual in directing the income to important expenses

Objectives of Budgeting1. To implement a proper & disciplined spendingindividuals must follow the amount allocated

2. To reduce amount of money wasted through unnecessary spending by

Reducing interest for credit

Buying items that involved large sum of money at different period of time (eg. Different

months)

Discussing with family members the items that should be bought at certain time

There are 3 steps in budgeting

1. Planning the spending plan

Estimating available income

Defining major expense categories & setting budget levels

2. Implementing the spending plan

3. Evaluating the spending plan

Steps in Budgeting

1. Planning the spending plan

i. Estimating available income Income are identified, make a list or table of income that might be received the following year

Income may be based to the past income with a little adjustment

Income include:

Salary (later minus the income-tax)

Dividend from investment

Bonus from investment or salary.


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Borrowed money

Money from working children

Rental from tenant

Debt repayment by others to you

At the beginning of the course, we have emphasized the need for managers to be

forward-looking. For you, therefore, reviewing the past information alone is not

enough since your job involves not only predicting but also shaping the future of

your enterprises. This requires proper planning about all activities of the business.

Finance being the life blood of a business, financial planning is of utmost

significance to a businessman. A budget is an important tool for financial planning

and control.

However, before we come to the intricacies of budgeting, it will be useful for you to

understand the meaning and implications of financial planning.

FINANCIAL PLANNING

Financial planning is concerned with raising of funds and their effective utilisation

with a view to maximise the wealth of the company. It includes the determination of:

the amount of funds needed for implementing various business plans

the pattern of financing i.e. the form and proportion of various corporate

securities , such as shares, debentures, bonds, bank loans to be issued or raised

the timing of floatation of various corporate securities


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In spite of a good financial plan, the desired results may not be achieved if there is no

effective control to ensure its implementation. The budget represents a set of

yardsticks or guidelines for use in controlling internal operations of an organisation.

The management, through budget, can evaluate the performance of every level of the

organisation. The discrepancy between plan performance and actual performance is

highlighted through budgets. The organisation may have to change the course of its

operations in a particular area or revise its plans keeping in view the changing

conditions.

It will, therefore, be useful for you to understand the complete budgeting process. In

this unit, we shall explain what budget is and what budgetary control means. Besides

the importance of budgeting as a management tool, the techniques of preparing

various types of budgets will also be discussed.

WHAT IS A BUDGET?

A budget is a plan expressed in quantitative, usually monetary terms, covering a

specific period of time, usually one year. In other words, a budget is a systematic

plan for the utilisation of manpower and material resources. In a business

organisation a budget represents an estimate of future costs and revenues. Budgets

may be divided into two basic classes : Capital Budgets and Operating Budgets.

Capital budgets are directed towards proposed expenditure for new projects and often

require special financing (this topic is discussed in the next unit). The operating

budgets are directed towards achieving short term operational goals of the

organisation, for instance, production or profit goals in a business firm. Operating

budgets may be sub-divided into various departmental or functional budgets. The


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main characteristics of a budget are:

a) It is prepared in advance and is derived from the long term strategy of the

organisation

b) It relates to future period for which objectives or goals have already been laid

down

c) It is expressed in quantitative from, physical or monetary units, or both.

Different types of budgets are prepared for different purposes e.g. Sales Budget.

Production Budget, Administrative Expense Budgets, Raw-material Budget, etc. All

these sectional budgets are afterwards integrated into a master budget which

represents an overall plan of the organisation. A budget helps its in the following

ways:

It brings about efficiency and improvement in the working of the organisation.

It is a way of communicating the plans to various units of the organisation. By

establishing the divisional, departmental, sectional budgets, exact

responsibilities are assigned. It thus minimizes the possibilities of buck-passing

if the budget figures are not met.

It is a way of motivating managers to achieve the goals set for the units.

It serves as a benchmark for controlling on-going operations.

It helps in developing a team spirit where participation in budgeting is

encouraged.

It helps in reducing wastage's and losses by revealing them in time for

corrective action.

It serves as a basis for evaluating the performance of managers.


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It serves as a means of educating the managers.

BUDGETARY CONTROL

No system of planning can be successful without having an effective and efficient

system of control. Budgeting is closely connected with control. The exercise of

control in the organisation with the help of budgets is known as budgetary control.

The process of budgetary control includes

(i) preparation of various budgets

continuous comparison of actual performance with budgetary performance

and

revision of budgets in the light of changed circumstances.

A system of budgetary control should not become rigid. There should be enough

scope for flexibility to provide for individual initiative and drive. Budgetary control

is an important device for making the organisation more efficient on all fronts. It is

an important tool for controlling costs and achieving the overall objectives.

Installing A Budgetary Control System

Having understood the meaning and significance of budgetary control in an

organisation, it will be useful for you to know how a budgetary control system can be

installed in the organisation. This requires first of all, finding answers to the


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following questions in the context of an organisation:

What is likely to happen?

What can be made to happen?

What are the objectives to be achieved?

What are the constraints and to what extent their effects can be minimised?

Having found answers to the above questions, the following steps may be taken for

installing an effective system of budgetary control in an organisation.

Organisation for Budgeting

The setting up of a definite plan of organisation is the first step towards installing

budgetary control system in an organisation. A, Budget Manual should be prepared

giving details of the powers, duties, responsibilities and areas of operation of each

executive in the organisation.

Responsibility for Budgeting

The responsibility for preparation and implementation of the budgets may be fixed as

under:

Budget Controller

Although the Chief Executive is finally responsible for the budget programme, it is


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better if a large part of the supervisory responsibility is delegated to an official

designated as Budget Controller or Budget Director. Such a person should have

knowledge of the technical details of the business and should report directly to the

President of the Chief Executive of the organisation.

Budget Committee

The Budget Controller is assisted in his work by the Budget Committee. The

Committee may consist of Heads of various departments, viz., Production, Sales

Finance, Personnel, Purchase, etc. with the Budget Controller as its Chairman. It is

generally the responsibility of the Budget Committee to submit, discuss and finally

approve the budget figures. Each head of the department should have his own Sub-

committee with executives working under him as its members.

Fixation of the Budget Period

`Budget period' means the period for which a budget is prepared and employed. the

budget period depends upon the nature of the business and the control techniques.

For example, a seasonal industry will budget for each season, while an industry

requiring long periods to complete work will budget for four, five or even larger

number of years. However, it is necessary for control purposes to prepare budgets

both for long as well as short periods.

Budget Procedures


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Having established the budget organisation and fixed the budget period, the actual

work or budgetary control can be taken upon the following pattern:

Sales Budget generally forms the fundamental basis on which all other budgets are

built. The budget is based on projected sales to be achieved in a budget period . The

Sales Manager is directly responsible for the preparation and execution of this

budget. He usually takes into consideration the following organisational and

environmental factors while preparing the sales budget:

Sales Budget

Some organisations follow the practice of preparing a rolling or progressive budget.

In such organisations, a budget for a year in advance will always be there

immediately after a month, or a quarter, passes, as the case may be, a new budget is

prepared for twelve months. The figures for the month/quarter, which has rolled

down, are dropped and the figures for the next month/quarter are added.

Rolling Budget

A rolling budget calls for considerably more management attention than is the case when a company

produces a one-year static budget, since some budgeting activities must now be repeated every

month. In addition, if a company usesparticipative budgetingto create its budgets on a rolling basis,

then the total employee time used over the course of a year is substantial. Consequently, it is best to

adopt a leaner approach to a rolling budget, with fewer people involved in the process.

Advantages and Disadvantages of the Rolling Budget

This approach has the advantage of having someone constantly attend to the budget model and revise

budget assumptions for the last incremental period of the budget. The downside of this approach isthat it may not yield a budget that is more achievable than the traditionalstatic budget, since the

budget periods prior to the incremental month just added are not revised.

Example of a Rolling Budget

ABC Company has adopted a 12-month planning horizon, and its initial budget is from January to

December. After a month passes, the January period is complete, so it now added a budget for the
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following January, so that it still has a 12-month planning horizon that now extends from February of

the current year to January of the next year.

Similar Terms

A rolling budget is also described as continuous budgeting.

Production budget may be expressed in physical or financial terms or both in relation

to production. The production budgets attempt to answer questions like: (i) What is .

to be produced? (ii) When it is to be produced? (iii) How it is to be produced? (iv)

Where it is to be produced? The production budget envisages the production

programme for achieving the sales target. It serves as a basis for preparation of

related cost budgets, e.g., materials cost budget, labour cost budget, etc. It also

facilitates the preparation of a cash budget. The production budget is prepared after

taking into consideration several factors like: (I) Inventory policies, (ii) Sales

requirements, (iii) Production stability, (iv) Plant capacity, (v) Availability of

materials and labour, (iv) Time taken in production process, etc.

This budget provides an estimate of the total volume of production distributed

product-wise with the scheduling of operations by days, weeks and months, and a

forecast of the inventory of finished products. Generally, the production budget is

based on the sales budget. The responsibility for the overall production budget lies

with Works Manager and that of departmental production budgets with departmental

works managers.

The direct materials' budget has two components, (i) materials requirement, bud-get,

and (ii) materials procurement or purchase budget. The former deals with the total


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quantity of materials required during the budget period, while the later deals with the

materials to be acquired from the Market during the budget period. Materials to be

acquired are estimated after taking into account the losing rind the opening

inventories and the materials for which orders have already been placed.

Basically, there are three elements of cods, namely direct material direct labour and

overheads. Separate budgets for each of these elements have to be prepared.

Selling and Distribution Overheads Budget: This budget includes all expenses

relating to selling advertising delivery of goods to customers, etc. It is better if such

costs are analysed according to products, types of customers, territories and the sales

departments. The responsibility for the preparation of this budget rests with the

executives of the sales department. There must be a relationship of selling expenses

with the volume of sales expected and an effort should be made to control the costs

of distribution. The preparation of the budget would depend on analysis of the market

situation by the management, advertising policies, research programmes, and the

fixed and variable elements.

Administrative Overheads Budget: This budget covers the administrative expenses

including the salaries of administrative and managerial staff. A careful analysis of the

needs of all administrative departments of the enterprise is necessary. The minimum

requirements for the efficient operation of each department can be estimated on the

basis of costs for the previous years, and after a study of the plans and responsibilities

of each administrative department for the budget period. The budget for the entire

administrative function is obtained by integrating the separate budgets of all

administrative departments.

Budget Format


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The Master Budget may have the following format:

or sales) actually attained does not conform to the one assumed for budgeting

purposes. The management will not be in a position to assess the performance of

different heads on the basis of budgets prepared by them, because they can serve as

yardsticks only when the actual level of activity corresponds to the budgeted level of

activity. On account of the limitations of fixed budgeting and its inability to provide

for automatic adjustments when the volume changes. Firms whose sales and

production, cannot be accurately estimated have given up the practice of fixed

budgeting

Budgeting

Events help us personally connect with the community. There are several significant elements to

consider when planning an event, as mentioned in the Company Meeting on Event Production last

week. One crucial element to planning a successful event is planning to take care of the financials

hence the need for a budget.

Events Budgeting - SiteTrack site rental costs. As you plan the event itself and as you meet with

your venue sales manager, track all projected rental fees for the event and function space,

housekeeping, baggage handling, and related expenses.

Estimate catering costs. This includes all food and beverage charges, including tips and gratuities --

which can account for up to 30%.

Add decor expenses. Most events include expenses for decor, such as centerpieces, flowers, tent

rentals, etc. This is where you list those costs.

Events BudgetProgram

Document entertainment & equipment fees. Common expenses in this category include the A/V

equipment, but it's also a good spot to list honorariums to speakers or if you are hiring entertainers.

Document transportation charges. This includes shuttles, coaches, event transfers, and any related

expenses.

Identify activities expenses. If your event includes activities such as golfing, tennis, spa, rafting,

biking, or other activities, you will want to note the cost of these fees separately. I suggest

summarizing the total cost in your spreadsheet and attaching a breakdown.


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Events BudgetingPublicity

Summarize printing charges. Several small item charges actually combine to make a larger expense

line item. These include invitations, name badges, program booklets, event signage and banners.

Set and summarize budget for online marketing. This includes advertisements on Facebook, Google,

and local newspapers, blogs and magazines.

Events Budgeting Miscellaneous

Line item for gifts. One of my event rules is to never allow a guest to leave empty handed. So,

whatever gift or gifts you provide, track the cost for them separately; you'd be amazed at how much

these items can cost.

Post other expenses. If an expense doesn't fall into any of the above categories, I tend to list them as

a miscellaneous expense item here.

Give yourself a contingency fund category. Depending on the size or complexity of an event, you

may want to give yourself as much as up to 20% of the event budget here. Despite the best planning,charges are going to exceed projected plans with expenses that you never consider. This will keep

you from going over budget every time.

Events Budgeting Process

Summarize projected expenses. As you build your event program, you will have a good projection of

the total expenses. This is the information that I will share with my event client to make sure they are

aware of the event budget so that there aren't any surprises later on.

Summarize actual expenses. This happens after the event has concluded. I will subtotal the invoices

into the above 10 categories and document the actual budget. If extremely favorable, I will identifysavings in actual budget vs. the projected budget, demonstrating the value-add of my role.


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Advantages And Disadvantages Of Budget

Control

Like other control methods, budgets have the potential to help organizations and theirmembers reach their goals. Budget controloffers several advantages to managers. Some ofthese are:

The major strength of budgeting is that it coordinates activities across departments.

Budgets translate strategic plans into action. They specify the resources, revenues, and

activities required to carry out the strategic plan for the coming year.

Budgets provide an excellent record of organizational activities.

Budgets improve communication with employees.

Budgets improve resources allocation, because all requests are clarified and justified.

Budgets provide a tool for corrective action through reallocations.

However, budgets control can also create problems. The disadvantages of budgets are:

The major problem occurs when budgets are applied mechanically and rigidly.

Budgets can demotivate employees because oflack of participation. If the budgets are

arbitrarily imposed top down, employees will not understand the reason for budgeted

expenditures, and will not be committed to them.

Budgets can cause perceptions ofunfairness.

Budgets can create competition for resources and politics.

A rigid budget structure reduces initiative and innovation at lower levels, making it

impossible to obtain money for new ideas.

These dysfunctional aspects of budgets systems may interfere with the attainment oftheorganization's goals. One generally accepted guideline for effective budgeting is to establishgoals that are difficult but attainable.

Therefore, skilled managers who understand budgets and how to use them have a powerful

control tool with which to attain departmental and organizational goals.


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Project BudgetingCost Plans and Budgets

Depending on the policies of your company, you may beinvolved with developing the cost plan and maintaining the

events budget. Often the client has been given a quotebefore the show, which typically includes expenses such aspre-planning, travel, sub- rentals, and other variable costs.Its the responsibility of the AV technician to monitor thebudget during the event.

There are a variety of budgets, all created to track andcategorize every dollar. As an AV technician, you will havethe greatest impact on two types of budgets:

Event budgets or event cost plans Company budgets

It is easy to get these two types of budgets confused. Due totheir close relationship, they share several standardaccounting characteristics.

Examples of a rental companys finances (Figure A) and thebudget breakdown of an event (Figure B) are on the nextpage. These are great examples of the blocks of financialdata that are organized and analyzed by the accountingdepartment to forecast the

financial standing of the company.

Notice that both tables track similar data such as income,revenue, and expenses; except an events budget is focusedon financial details of a single event rather than the impact ofmany events.

When it comes to individual shows, the cost structurechanges in comparison to the companys overall picture. Anevent that uses minimal outside resources will appear to bemore profitable. Look in the example below at the events

finances and compare it to the company finances. This is anexample of an event where the events expenses (Figure B)exactly match the percentages for the whole rental company(Figure A).

An example of a companys finances:


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Rental Company

Income StatementRevenue 100%

(less Expenses) 90%

= Gross Profit 10%

Revenue Breakdown

Equipment Rental 60%

Labor 30%

Supplies/Materials 10%

= Total Revenue 100%

Expenses Breakdown

Business Overhead 40%

Labor - internal 15%

Labor - external 15%

Cost of Supplies 5%

Cost of Sale Items 5%

Sub-Rentals 10%

= Total Expenses 90%

(Figure A)

An example of an events finances:An Events Budget

Budget BreakdownRevenue $10,000

(less Expenses) 9,000

= Gross Profit $1,000

Revenue Breakdown

Equipment 7,500


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(less 20% discount) (1,500)

Estimated Labor 3,000

Materials Sold 1,000

= Total Revenue 10,000

Expenses Breakdown Average

Share of Business Overhead 4,000

Cost of Staff used on event 1,500

Cost of outside labor 1,500

Cost of supplies sold 500

Cost of supplies used 500

Cost of sub-rentals 1,000

= Total Expenses 9,000

(Figure B)

Notice the similarities between the data that is tracked for thecompany and event.

Income

Many businesses divide their accounting into two groups: costcenters and profit centers. Profit centers are sources of revenue.Cost centers are the departments that are not responsible forgenerating revenue, such as the accounting department.

Any events an AV tech works on are typically categorized as profitcenters. The event is intended to make a profit. If the event issuccessful, it will increase the amount of dollars in that profitcenter- if it is not successful, it will decrease the amount of dollars

in that profit center, showing a loss of income for that event. Whenan event shows profit, it brings the company income. Whether theeven makes a profit or not, it is still considered a profit center. A

companys revenue is sometimes called income, and can beacquired from different sources.

A rental or staging companys income sources may include:1. Equipment Rental

2. Labor

3. Materials

To make a profit, the company needs to charge the client more for the service

or materials than it is costing them to acquire, and maintain it. The pricingstructure must be set so that it brings in income: Total Costs + Profit = Price.

However, the price must be competitive when compared to what othercompanies are charging for the same service or product. This often results in

more of a profit on some items and less on others, making some items moreprofitable than others. In the rental industry, on average, the majority of

income will not come from the mark-up on labor or materials; but from the

rental of equipment.


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Expenses

Expenses come in many different forms. They arecategorized by how often they occur and if they are expectedto reoccur. Categorizing these expenses can be difficult, butso can calculating them. There are straight forwardcalculations such as costs of salaries and purchasingequipment. Other expenses, which are more difficult toassess are: deprecation of equipment, mileage on vehicles,and the cost of replacing lost or stolen equipment. Thecompanys ability to track and prepare their finances forthese expenses is essential to the companys degree ofsuccess.Two Types of Expenses

Operating overhead is a large expense for a company in thelive events industry. Operating overhead, also known as fixed

expense, is not directly altered by the amount of business atany given time. The allocation of operating overhead willaffect the entire company. An example of this is the amount acompany will pay in salaries. Calculating total operatingoverhead will help the company set prices that will allow themto make a profit.

Examples of operating overhead: Equipment depreciation Insurance, utilities Rent

Salaries (for cost center labor) , accounting, marketing,and management

Variable expenses can fluctuate in proportion to the salesrevenue (income). Theoretically, they are controllable basedon the level of sales. The classic example of a variableexpense is a sales commission, which varies based on theamount of sales revenue.All the other variable expenses will change based on unitssold. Accurately calculating these expenses will help theaccounting department analyze the performance compared

to prior years and adjust the prices accordingly.

Examples of variable expenses are: Sub-rental equipment you must pay to use Materials items sold to the client Supplies items that are used in the course of

doing business, but are not paid for by the client Direct Labor (profit center staff) positions


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directly associated with revenue.

To calculate profit, the accounting department may follow asimple formula: unit margin (the price you pay for a unit andyour costsfor purchasing and maintaining it) unit sales volume = total margin fixed expenses = operating profit. Changes in sales

volume and prices per unit will affect the entire profitstructure.

Understanding Variable Expenses

Sometimes it is difficult to appreciate the impact variableexpenses have on a companys profit margin. Variableexpenses are the most easily adjusted, and therefore, themost easily controlled. Once you understand the large impactthese expenses can have on your companys profits, you can

appreciate the role you can play in managing your companysvariable expenses.

Costs of Sub-RentalsOne of the largest variable expenses for rental companies issub- rental. This is the equipment rented from othercompanies to supplement or replace existing inventory.Minimizing unnecessary sub-rentals is one of the mostimportant things a rental company can do to controlexpenses. For example, if a company can reduce sub-rentalsby $20,000 per year by purchasing a $50,000 item that will

last for three years, then it can realize a 20% return on itsinvestment over three years ($20,000 x 3= $60,000.$60,000 -$50,000= $10,000 or, 20% of the $50,000 purchase).

What are some ways that you can reduce the amount ofsub- rentals your company uses?

Costs of Lost or Stolen EquipmentA lost piece of gear has three costs associated with it:

1. Purchase cost The purchase price of equipmentdepreciates overtime, which translates into a monthlycost. For example, a $1,000 item depreciated over threeyears costs the company $27.78 a month regardless ofthe number of uses.

2. Sub-rental cost The cost of renting a replacementfor lost or stolen equipment. If the $1,000 item rents to


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a client for$100 a week and the replacement sub-rental costs$90 a week, that leaves only $10 to pay for the$27.78 depreciation instead of the $100 normallyreceived from a non sub-rental.

3. Replacement cost If the company buys a new

$1,000 item, the total depreciation increases to$55.56. This increase accounts for the deprecationof the stolen equipment.

4. Hidden costEmployee time spent tracking lostinventory, reporting stolen gear to authorities,purchasing new gear, arranging for sub-rentals, andtransporting sub-rentals.

What are some ways you can reduce the cost of lost or stole gear? Secure all the equipment at all times. Keep doors shut and locked. Record what gear is removed from the warehouse and

when it is returned to the warehouse. Keep records of where the equipment is at all times. Avoid keeping equipment in the trucks if you can. If equipment must be stored in the trucks, park the

trucks in secure areas or in highly visible areas.Expense Tracking

Here is an example of a live event budget form thattracks the costs of an event:

LIVE EVENTS FORM

Event Title:

Event Date:

Length:

Event Personnel: Number Days Rate Indirect Costs Direct Costs Total

Onsite ProjectManager

Lead AV Technician

Assistant AVTechnician

Pre-Production

Post-Production

Camera DirectorCamera OperatorAudio Engineer


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Sound BoardOperator

GafferHeavy LiftingRigger

PersonnelSubtotal

Equipment: Number Days Rate Indirect Costs Direct Costs TotalScaffoldingPackageProjection PackageCamera Package

Equipment: (contd) Number Days Rate Indirect Costs Direct Costs TotalSound PackageLighting PackageDolly RentalSub-RentalsStrike of Equipment

EquipmentSubtotal

Supplies: Number Days Rate Indirect Costs Direct Costs TotalGaffers TapeProjection Bulbs

BatteriesVHSSVHSDVIDVD

CD-RWSupplies Subtotal

Travel: Number Days Rate Indirect Costs Direct Costs TotalLodgingAir FareParkingMealsPer Diem

Travel Subtotal

Office Number Days Rate Indirect Costs Direct Costs TotalTelephone

ComputerPhotocopyingPostageSupplies

Office Sub-total

Miscellaneous Number Days Rate Indirect Costs Direct Costs TotalEvent Insurance


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Location Permitsand FeesCateringParking FeeDocking FeeVehicle MileageVehicle Rental

MiscellaneousSubtotal


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Key Financial Factors During an Event

Making good decisions during crisis situations can be a dauntingtask. You must use your knowledge of the shows budget, theclients temperament, and your companys resources to come upwith viable solutions. One resource that you can use to makeinformed decisions is the employee time log. This will help youknow the status of each employee.

Before you make a decision look at the key factors to considerduring a crisis:

Fixed labor

Unreimbursed (you cannot charge your client) overtime

Unreimbursed (you cannot charge your client) supplies Unnecessary sub-rentals

Fixed labor Fixed labor costs are the labor costs guaranteed tothe client not to increase and are typically estimated prior to theevent as a package price. If a lead AV technician manages timeand resources well, tit is possible to finish the event using lesslabor hours than estimated. Completing events early can helpmake a profit for the company. Unfortunately, when a crisissituation occurs, additional labor and material is often required. Ifthe crisis is not caused by the client, the client will not have to payany extra costs, and your company will have to absorb the cost,causing a loss of revenue.

Unreimbursed overtime Depending on the contract andsituation, un-reimbursed overtime can take several forms.Unreimbursed overtime occurs when you cannot charge the clientfor overtime. This is often caused by mistakes in time managementor in allocation of resources. A example of this would when theequipment being delivered arrives late due to traffic problems,which can causes the labor crew to get paid for just waiting towork.

The next example of unreimbursed overtime is hidden overtime.This type of overtime occurs when the crew is working twoconsecutive events. If circumstances dictate that the first eventhas the crew work a longer than planned, it causes them to rollinto overtime during the second event.

Unreimbursed supplies These are supplies that are consumedduring the course of one or many events. Examples ofunreimbursed supplies include projector lamps, gaffers tape, and


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batteries.

Sub-Rental This is equipment that the company does not ownand must pay to use. If managed properly, sub-rentals can helpthe company when its own inventory is temporarily short, or theequipment needed for a job is out of the normal scope of services

the company usually provides. Unnecessary sub-rentals, however,can be a result of mistakes, such as poor logistical planning, lack ofproper maintenance leading to equipment failure, and improperlydiagnosed equipment problems.

Extra labor, sub-rentals, and supplies can quietly destroy an eventsprofit and, over time, a companys business. Manage yourresources wisely and use prudent control over expenditures when

ever possible. Be resourceful and explore all of your options beforeincurring expenses. Take the time to realign your revenue andexpenses on a regular basis by looking at your financial paperwork.

Keeping Accurate Time Logs

Keeping accurate logs is vital to the success of the event, especiallywhen faced with a crisis. Crisis situations may cause you to

abandon all thought and react on instinct. STOP! Hastydecisions can increase the probability of lost profit margins.You need tokeep a cool head and use resources such as time logs tomake intelligent decisions.

To stay within budget, you need to inspect your time logs.

Figure out ways to maximize efficiency. When you can,utilize an employee who:

is not being paid overtime has taken their break is completing their assigned task ahead of schedule is capable of solving the problem

Below is an example of a timesheet that tracks the task thatthe employee is working on and the time spent on that task.The hours this person worked on the event can be recorded ona master sheet so that you know the current status of each

employee. This will allow you to make informed decisions andsave money.

It is a best practice to standardize your companystimesheets. Each sheet should include the employeesname, the event ID (if working on multiple events), the theemployee began and ended working, , the total hoursworked per day, and hours worked per event.


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It is difficult to motivate employees to keep an accurateaccount of the hours. One way to help remove commonobstacles is by creating a standard time log. This log shouldbe clear, concise, and easy to complete, use, and reference.

Time Sheet

Name:Date:Event:

Assigned Task Start Time Stop Time

Total HoursPer TaskRegularTime

Total HoursPer TaskOvertime

Total:

Allocating Resources During an Event

There are many decisions to make during an event. Whenyou are new to managing events, it is often difficult to knowwhat decisions to make. Unfortunately, there is no list ofright and wronganswers, when it comes to these decisions. You must learnabout the common mistakes made during the event and doyour best to avoid making similar mistakes.Each company has a different process for approving changesto the budget or schedule. These processes can often requirean AV technician to contact several people before making achange. It is abest practice for a company to provide itstechnicians with contact information for everyone who mustapprove a change, and the procedure involved with makingthat change.


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Analyze a possible situation where you may need toallocate resources during an event and analyze somepossible solutions.

You are a lead AV technician for an event. During the course

of this event, a video projector fails. Your company doesnthave any spare projectors, so a sub-rental has to be secured.Once you secure a sub-rental, you must decide how toproceed with transportation and installation. As a projectmanager or lead AV technician, you have the ability tominimize certain costs with good decision-making.

Lead technicianAdecides to use outside labor to locate,transport, and install the sub-rental projector. Due to themeticulous time logs, the lead technician knows that the

outside labor is still on straight time while the inside laborwould be on overtime.

Budget Breakdown

RENTAL EVENT

Revenue $10,000


= Gross Profit $1,000

Revenue Breakdown

Equipment 7,500(less 20% discount) (1,500)

Estimated Labor 3,000Materials Sold 1,000


Expenses Breakdown - Average

Share of Business Overhead 4,000Cost of Staff used on event 1,500

Cost of outside labor 1,500Cost of supplies sold 500

Cost of supplies used 500Cost of sub-rentals 1,000



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RENTAL EVENT

Budget Breakdown

Revenue $10,000


= Gross Profit $450

Revenue Breakdown

Equipment 7,500

(less 20% discount) (1,500)

Estimated Labor 3,000

Materials Sold 1,000


Expenses Breakdown - Average

Share of Business Overhead 4,000

Cost of Staff used on event 1,750Cost of outside labor 1,000

Cost of supplies sold 950

Cost of supplies used 250

Cost of sub-rentals 1,000


Making informed decisions about labor can mean the difference between a

profitable event and a costly event. Having up-to-date logs will help youmake informed decisions faster. The sooner a problem is resolved the less

chance your client will notice the problem, the greater chance you have of

fixing it in time, and the more time your crew will have to complete theirtasks on schedule without incurring overtime.

Facility Contracts and Insurance

Every event will need insurance and contracts to operatelegally. The types of contracts and insurance required will varydepending on regional codes and laws. The event site or yourcompany will know what type of contracts and insurance arerequired for you to legally operate. As an AV technician, you

must know where the legal documentations are so that youcan produce it if asked. If the legal documentation is notavailable at the show site, you must know who to contact toconfirm the documentation.

AV technicians usually dont sign contracts with clients.Normally, an AV technician needs to know that the contractsexist and who is responsible for enforcing their terms.


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Smaller AV organizations

require an AV technician to read and interpret contracts withvenues, insurance agencies, or sub-rental agencies. If yourcompany requires you to work with contracts, they shouldprovide guidelines for you to follow.

Here are some examples of contract features that should causeconcern when you see them:

The terms of the contract infringe on rights or createdangerous situations.

The terms of the contract can be interpreted in multiple ways. The terms of the contract violate anyones rights which are

guaranteed them under the law. The penalties outlined in the contract seem unreasonable.

In these cases, bring the issue to the attention of your supervisor.In many cases, the contract will need to be rewritten, or the

changes will be written into the original contract and initialed byboth parties.

LiabilityThe most prevalent legal issue in the live events industry is safety.Insurance companies exist to make sure their client is the last onefound liable in the event of an accident. Insurance companies hirepeople to make sure large corporations and hotels are never foundliable. As an AV company, vendor, or sub-contractor, you need to

be protected by liability insurance. As an AV technician, you mustfollow proper procedures and be aware of your actions at all timesto prevent an accident.

To prevent accidents, monitor the area before, during, andafter the event and look for:

Improperly secured cables Improperly taped cables Dangerous overhead rigging and hanging equipment Damage to the facility Unsafe operation of equipment Damaged hardware Damaged cables

Here is an example of what can happen:A company was doing a show in an atrium lobby. Lights weremounted on pipe and base hung out over the edge of the balcony,held in place only by sandbags. After the show had ended, a stagehand removed all the sandbags from the bases, the lights and pipefell down four stories and killed a woman. It was a horrible tragedythat was caused by an employee who had not been properlytrained. This company was extremely negligent, suffered lawsuits,and almost went out of business as result. You have to be very


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aware of what you are doing and understand what could happen.The reason AV professionals tape cables around doorways isbecause they know what could happen. There are a lot ofwhatcould happensand there is no end to the number of things toconsider.

In the event of an accident, always take care of the people first.Make sure they get proper medical attention, then ask for thepersons information, documentation, and then notify yoursupervisor so that the proper forms can be filled out.

When working in the clients venue (hotel, convention center, or

building), there may be other authorities that need to be notified.In a hotel or convention center, its often the security office, or theymay even have a safety officer who needs to be notified. Makesure you go through the proper channels and be accommodating.Your company may be liable, so dont do anything thats going tomake it worse by being uncooperative. Take care of people first.Accidents dont happen very often but when they do it can be very

devastating to a company and the people involved. Do everything

you can to prevent accidents from happening.


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BUDGETARY CONTROL

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M L Dahanukar College of Commerce

EVENT BUDGET

EVENT: College Event

ORGANISER: Students

TELEPHONE NUMBER:916000000

PREDICTED ATTENDANCE: 500 TICKET UNIT PRICE:400

VENUE: College campus EVENT DATE:28/2/2013

INCOME

Projected ticket sales total 200000

Sponsorship 100000

Collected transport fares 50000

Food sales 150000

Beverages sales 75000

Other (specify) 50000

TOTAL INCOME 625000


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BUDGETARY CONTROL

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EXPENDITURE

Venue ---------

Security 5000

Licensing 20000

Insurance 50000

Tickets 15000

Advertising 20000

DJ 35000

Band 25000

PA / sound system 10000

Lighting 15000

Other entertainment 25000

Beverages stock 5000

Food 60000

Contingency (Min. 50) 20000



TOTAL EXPENDITURE 320000

SURPLUS 305000

Notes:

1. All costs should be shown inclusive of VAT you must always check with a supplier

whether a quoted price includes VAT. They often won't say unless you ask.

2. Non-budgeted expenditure is the personal responsibility of the organiser and will

not be paid.

3. The organiser named at the top of this budget will be the authorised signatory for

expenditure relating to this event unless there is another budget holder (e.g. RagOfficer or the Ents Officer

DATE PASSED

BUDGET APPROVED


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BUDGETARY CONTROL

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EXPENDITURE

FIXED COST

Venue ---------

Security 5000

Licensing 20000

Insurance 50000

Tickets 15000

Advertising 20000

DJ 35000

Band 25000

PA / sound system 10000

Lighting 15000

Other entertainment 25000

VARIABLE COST

Beverages EXPENSES 5000

Food 60000



TOTAL EXPENDITURE 300000

DATE PASSED

BUDGET APPROVED


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BUDGETARY CONTROL

BIBLOGRAPHY

Books Referred MANAGEMENT ACCOUNTING By Bhattacharyya Debarshi

STANDARD COSTING, VARIANCE

ANALYSIS AND DECISION - MAKING By Alexander Berger

Website Visited

www.caclubindia.com

www.futureaccountant.com

www.accountingtools.com

www.globusz.com

www.accountingcoach.com
http://www.caclubindia.com/http://www.caclubindia.com/http://www.futureaccountant.com/http://www.futureaccountant.com/http://www.accountingtools.com/http://www.accountingtools.com/http://www.globusz.com/http://www.globusz.com/http://www.accountingcoach.com/http://www.accountingcoach.com/http://www.accountingcoach.com/http://www.globusz.com/http://www.accountingtools.com/http://www.futureaccountant.com/http://www.caclubindia.com/

budgets(matter)

Documents