BUSN
278 Entire Course Budgeting and Forecasting
BUSN 278 Entire Course Budgeting and
Forecasting
BUSN278 Week 1 Section 1.0 Executive
Summary (Draft)
BUSN 278 Week 2 Section 2.0 Sales
Forecast (Draft)
BUSN278 Week 3 Section 3.0 Capital
Expenditure Budget (Draft)
BUSN278 Week 4 Section 4.0
Investment Analysis (Draft)
BUSN278 Week 5 Section 5.1 Pro Forma
Income Statement (Draft)
BUSN278 Week 6 Section 5.2 Pro Forma
Cash Flow Statements (Draft)
BUSN278 Week 7 Final Budget Proposal
BUSN278 Week 7 Final Presentation
BUSN278 Course Project (Papa Geo’s
Restaurant)
Project Overview:
This is an individual project where you will be acting as a consultant to an entrepreneur who wants to start a new business. As the consultant, you’ll create a 5 year budget that supports the entrepreneur’s vision and strategy, as well as the needs for equipment, labor, and other startup costs.
You can choose from one of three types of new business startups — a landscaping company, a restaurant, or an electronics store that sells portable computing devices. Each business has its own Business Profile detailed in the sections below. The purpose of the Business Profile is to guide you in understanding the scope of the business, the entrepreneur’s startup costs, and financial assumptions.
The project requires you to create a written budget proposal, a supporting Excel Workbook showing your calculations, and a PowerPoint presentation summarizing the key elements of the budget proposal, which you assume will be presented to a management team.
This is an individual project. Each week you will complete a section of the project in draft form. In Week 7, you will submit the final version of the project’s Budget Proposal, Budget Workbook, and Budget Presentation in PowerPoint.
Deliverables Schedule / Points
Week
Deliverable
Points
1
Section 1.0 Executive Summary (Draft)
10
2
Section 2.0 Sales Forecast (Draft)
10
3
Section 3.0 Capital Expenditure Budget (Draft)
10
4
Section 4.0 Investment Analysis (Draft)
10
5
Section 5.1 Pro Forma Income Statement (Draft)
10
6
Section 5.2 Pro Forma Cash Flow Statements (Draft)
10
7
Final Budget Proposal
90
7
Final Presentation w/ PowerPoint
30
Total project points
180
Business Profile:Papa Geo’s – Restaurant
Vision
The vision of the entrepreneur is to create a single-location, sit-down Italian restaurant called Papa Geo’s. The goal is to generate an income of $40,000 per year, starting sometime in the second year of operation, as wells as profit that is at least 2% of sales.
Strategy
a) Market Focus/Analysis
The restaurant targets middle to lower-middle class families with children, as well as adults and seniors, located in Orlando, Florida. The area within 15 minutes of the store has 10,000 families, mostly from lower to middle class neighborhoods. Average family size is 4 people per household. There is no direct competition; however, there are fast food restaurants like McDonald’s, Taco Bell and Wendy’s in the geographical target market. The lower to middle class population is growing at about 6% per year over the next five years in this area.
b) Product
The product is Italian food served buffet style, in an all-you-can-eat format, with a salad bar, pizza, several different types of pasta with three or four types of sauces, soup, desserts, and a self-serve soda bar. The restaurant is also to have a 500 square foot gaming area which has game machines that children would be interested in using.
c) Basis of Competition
Customers come to this restaurant because of the good Italian food at a low price – you can get a meal for $7, including drinks. Customers also eat at Papa Geo’s due to the cleanliness of the facility, the speed of getting their seat and food, and the vending machines which keep the children busy while adults enjoy their meal.
Startup Requirements*
Given Costs
• The cost of registering a limited liability company in Florida – filing fees listed at the bottom of the application for located at: http://form.sunbiz.org/pdf/cr2e047.pdf
• Renovation of the facility expected to cost $15,000
• Business insurance, estimated at $1,000 per year
• Health and other benefits are 20% of the salaries of the manager and assistant manager
Costs you should estimate through research, experience or other methods
Soda fountain bar 2 pizza ovens Salad and pizza/dessert bar Approximately 100 square foot commercial refrigerator 2 cash registers 6 video game vending machines Management office with desk and lower-priced laptop computer Staff lunchroom equipment such as microwave, sink, cupboards and refrigerator 20 four-seater tables with chairs Busing cart for transporting dirty dishes from the dining area to the dishwashing area 140 sets of dishes, including cutlery and drinking cups Commercial dishwasher Miscellaneous cooking and food handling equipment like trays, lifters, spoons, pots etcetera The cost of an average of 7 employees on the payroll. All operating costs, such as advertising, rent for a 3,500 square foot facility with male and female washrooms (already installed), utilities, maintenance, and annual depreciation
*If you have questions about startup requirements, or think other startup costs necessary for the business are missing, then make an assumption and state it in the relevant section of the report.
Given Financial Assumptions*
The owner will be granted a loan for the initial startup, repayable over 10 years at current interest rates for small business loans. The owner will use personal funds to operate the business until it generates enough cash flow to fund itself. Essentially, all sales are made by credit card. All credit card sales are paid to the restaurant daily by the credit card company. 2.5% of sales is paid to the credit card company in fees. Food suppliers give 30 days of trade credit. Inventories are expected to be approximately 10% of the following month’s sales. The average meal costs $4.00 in materials and labor. The average family spends $4.00 on vending machine tokens. Equipment is depreciated on a straight-line basis over 5 years. Managers have health benefits, other workers do not. The company will operate from 10:00 am to 9:00 pm, 7 days a week. The entrepreneur will manage the store and draw a salary. Every shift has one person on the cash register, one keeping the food bars stocked with food, two cooking the food, one on busing and table cleaning, a manager, and assistant manager.
*If you believe any other assumptions are necessary, please state them in your budget proposal.
This is an individual project where you will be acting as a consultant to an entrepreneur who wants to start a new business. As the consultant, you’ll create a 5 year budget that supports the entrepreneur’s vision and strategy, as well as the needs for equipment, labor, and other startup costs.
You can choose from one of three types of new business startups — a landscaping company, a restaurant, or an electronics store that sells portable computing devices. Each business has its own Business Profile detailed in the sections below. The purpose of the Business Profile is to guide you in understanding the scope of the business, the entrepreneur’s startup costs, and financial assumptions.
The project requires you to create a written budget proposal, a supporting Excel Workbook showing your calculations, and a PowerPoint presentation summarizing the key elements of the budget proposal, which you assume will be presented to a management team.
This is an individual project. Each week you will complete a section of the project in draft form. In Week 7, you will submit the final version of the project’s Budget Proposal, Budget Workbook, and Budget Presentation in PowerPoint.
Deliverables Schedule / Points
Week
Deliverable
Points
1
Section 1.0 Executive Summary (Draft)
10
2
Section 2.0 Sales Forecast (Draft)
10
3
Section 3.0 Capital Expenditure Budget (Draft)
10
4
Section 4.0 Investment Analysis (Draft)
10
5
Section 5.1 Pro Forma Income Statement (Draft)
10
6
Section 5.2 Pro Forma Cash Flow Statements (Draft)
10
7
Final Budget Proposal
90
7
Final Presentation w/ PowerPoint
30
Total project points
180
Business Profile:Papa Geo’s – Restaurant
Vision
The vision of the entrepreneur is to create a single-location, sit-down Italian restaurant called Papa Geo’s. The goal is to generate an income of $40,000 per year, starting sometime in the second year of operation, as wells as profit that is at least 2% of sales.
Strategy
a) Market Focus/Analysis
The restaurant targets middle to lower-middle class families with children, as well as adults and seniors, located in Orlando, Florida. The area within 15 minutes of the store has 10,000 families, mostly from lower to middle class neighborhoods. Average family size is 4 people per household. There is no direct competition; however, there are fast food restaurants like McDonald’s, Taco Bell and Wendy’s in the geographical target market. The lower to middle class population is growing at about 6% per year over the next five years in this area.
b) Product
The product is Italian food served buffet style, in an all-you-can-eat format, with a salad bar, pizza, several different types of pasta with three or four types of sauces, soup, desserts, and a self-serve soda bar. The restaurant is also to have a 500 square foot gaming area which has game machines that children would be interested in using.
c) Basis of Competition
Customers come to this restaurant because of the good Italian food at a low price – you can get a meal for $7, including drinks. Customers also eat at Papa Geo’s due to the cleanliness of the facility, the speed of getting their seat and food, and the vending machines which keep the children busy while adults enjoy their meal.
Startup Requirements*
Given Costs
• The cost of registering a limited liability company in Florida – filing fees listed at the bottom of the application for located at: http://form.sunbiz.org/pdf/cr2e047.pdf
• Renovation of the facility expected to cost $15,000
• Business insurance, estimated at $1,000 per year
• Health and other benefits are 20% of the salaries of the manager and assistant manager
Costs you should estimate through research, experience or other methods
Soda fountain bar 2 pizza ovens Salad and pizza/dessert bar Approximately 100 square foot commercial refrigerator 2 cash registers 6 video game vending machines Management office with desk and lower-priced laptop computer Staff lunchroom equipment such as microwave, sink, cupboards and refrigerator 20 four-seater tables with chairs Busing cart for transporting dirty dishes from the dining area to the dishwashing area 140 sets of dishes, including cutlery and drinking cups Commercial dishwasher Miscellaneous cooking and food handling equipment like trays, lifters, spoons, pots etcetera The cost of an average of 7 employees on the payroll. All operating costs, such as advertising, rent for a 3,500 square foot facility with male and female washrooms (already installed), utilities, maintenance, and annual depreciation
*If you have questions about startup requirements, or think other startup costs necessary for the business are missing, then make an assumption and state it in the relevant section of the report.
Given Financial Assumptions*
The owner will be granted a loan for the initial startup, repayable over 10 years at current interest rates for small business loans. The owner will use personal funds to operate the business until it generates enough cash flow to fund itself. Essentially, all sales are made by credit card. All credit card sales are paid to the restaurant daily by the credit card company. 2.5% of sales is paid to the credit card company in fees. Food suppliers give 30 days of trade credit. Inventories are expected to be approximately 10% of the following month’s sales. The average meal costs $4.00 in materials and labor. The average family spends $4.00 on vending machine tokens. Equipment is depreciated on a straight-line basis over 5 years. Managers have health benefits, other workers do not. The company will operate from 10:00 am to 9:00 pm, 7 days a week. The entrepreneur will manage the store and draw a salary. Every shift has one person on the cash register, one keeping the food bars stocked with food, two cooking the food, one on busing and table cleaning, a manager, and assistant manager.
*If you believe any other assumptions are necessary, please state them in your budget proposal.
All Discussion Questions
w1 dq1 Budgeting and Planning
w1 dq2 Forecasting Techniques
w2 dq1 Linear Regression
w2 dq2 Seasonal Variations
w3 dq1 Revenue Budget
w3 dq2 Capital Expenditures Budget
w4 dq1 Capital Budgeting
w4 dq2 New Business Startups
w5 dq1 Master Budget
w5 dq2 Cash Budgeting
w6 dq1 Cost Behavior
w6 dq2 Variance Analysis
w7 dq1 Administering the Budget
w7 dq2 Presenting and Defending a Budget
w1 dq2 Forecasting Techniques
w2 dq1 Linear Regression
w2 dq2 Seasonal Variations
w3 dq1 Revenue Budget
w3 dq2 Capital Expenditures Budget
w4 dq1 Capital Budgeting
w4 dq2 New Business Startups
w5 dq1 Master Budget
w5 dq2 Cash Budgeting
w6 dq1 Cost Behavior
w6 dq2 Variance Analysis
w7 dq1 Administering the Budget
w7 dq2 Presenting and Defending a Budget
BUSN 278 Week 4 Midterm
(TCO 1) The type of budget that is
updated on a regular basis is known as a ________________
(TCO 2) The quantitative forecasting method that uses actual sales from recent time periods to predict future sales assuming that the closest time period is a more accurate predictor of future sales is:
(TCO 3) The regression statistic that measures how many standard errors the coefficient is from zero is the ________________
(TCO 4) Capital expenditures are incurred for all of the following reasons except:
(TCO 5) Which of the following is not true when ranking proposals using zero-base budgeting?
(TCO 6) Which of the following ignores the time value of money?
(TCO 1) There are several approaches that may be used to develop the budget. Managers typically prefer an approach known as participative budgeting. Discuss this form of budgeting and identify its advantages and disadvantages.
(TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the three main quantitative approaches used for time series forecasting models.
(TCO 2) The Federal Election Commission maintains data showing the voting age population, the number of registered voters, and the turnout for federal elections. The following table shows the national voter turnout as a percentage of the voting age population from 1972 to 1996 (The Wall Street Journal Almanac; 1998):
(TCO 2) The quantitative forecasting method that uses actual sales from recent time periods to predict future sales assuming that the closest time period is a more accurate predictor of future sales is:
(TCO 3) The regression statistic that measures how many standard errors the coefficient is from zero is the ________________
(TCO 4) Capital expenditures are incurred for all of the following reasons except:
(TCO 5) Which of the following is not true when ranking proposals using zero-base budgeting?
(TCO 6) Which of the following ignores the time value of money?
(TCO 1) There are several approaches that may be used to develop the budget. Managers typically prefer an approach known as participative budgeting. Discuss this form of budgeting and identify its advantages and disadvantages.
(TCO 2) There are a variety of forecasting techniques that a company may use. Identify and discuss the three main quantitative approaches used for time series forecasting models.
(TCO 2) The Federal Election Commission maintains data showing the voting age population, the number of registered voters, and the turnout for federal elections. The following table shows the national voter turnout as a percentage of the voting age population from 1972 to 1996 (The Wall Street Journal Almanac; 1998):
(TCO 3) Use the table “Food and
Beverage Sales for Paul’s Pizzeria” to answer the questions below.
(TCO 6) Jackson Company is considering two capital investment proposals. Estimates regarding each project are provided below:
(TCO 6) Top Growth Farms, a farming cooperative, is considering purchasing a tractor for $468,000. The machine has a 10-year life and an estimated salvage value of $32,000. Top Growth uses straight-line depreciation. Top Growth estimates that the annual cash flow will be $78,000. The required rate of return is 9%.
(TCO 6) Jackson Company is considering two capital investment proposals. Estimates regarding each project are provided below:
(TCO 6) Top Growth Farms, a farming cooperative, is considering purchasing a tractor for $468,000. The machine has a 10-year life and an estimated salvage value of $32,000. Top Growth uses straight-line depreciation. Top Growth estimates that the annual cash flow will be $78,000. The required rate of return is 9%.
Part (a) Calculate the payback
period.
Part (b) Calculate the net present value.
Part (c) Calculate the accounting rate of return
Part (b) Calculate the net present value.
Part (c) Calculate the accounting rate of return
BUSN 278 Final Exam
- (TCO 1) Which one of the following is not a benefit of
budgeting? (Points : 5)It
facilitates the coordination of activities.
It provides definite objectives for evaluating performance.
It provides assurance that the company will achieve its objectives.
It provides early warning signs of potential threats. - (TCO 2) Which of the following is not a qualitative
forecasting method? (Points : 5)Executive
opinions
Sales force polling
Delphi method
Classical decomposition - (TCO 3) Which of the following statements regarding the
t-statistic is true? (Points : 5)The
t-statistic cannot be negative.
The t-statistic measures how many standard errors the coefficient is away from the independent variable.
The higher the t-value, the more confidence we have in the coefficient.
Low t-values indicate high reliability. - (TCO 4) Which of the following statements regarding the
risk associated with R&D activities is incorrect? (Points : 5)The amount of time between the R&D activity and the
cash flows from the project does not affect risk.
Greater risk is associated with creating new products than improving existing products.
Risk increases as the time between the R&D activity and the cash flows from the project increases.
Assessing risk is a vital part of research and development. - (TCO 5) Program budgeting does not include: (Points :
5)Controlling
Programming
Budgeting
Planning
- (TCO 6) The payback period technique ___________
(Points : 5)should be used as a final
screening tool.
can be the only basis for the capital budgeting decision.
is relatively easy to compute and understand.
considers the expected profitability of a project. - (TCO 6) The profitability index is computed by dividing
the ___________ (Points : 5)total
cash flows by the initial investment.
present value of cash inflows by the present value of each outflow.
initial investment by the total cash flows.
initial investment by the present value of cash flows. - (TCO 6) A company projects annual cash inflows of
$85,000 each year for the next five years if it invests $300,000 in new
equipment. The equipment has a five-year life and an estimated salvage
value of $75,000. What is the accounting rate of return on this
investment? (Points : 5)28.3%
13.3%
15%
43.3% - (TCO 6) If an asset costs $210,000 and is expected to
have a $30,000 salvage value at the end of its ten-year life, and
generates annual net cash inflows of $30,000 each year, the payback period
is _____. (Points : 5)5
years
6 years
7 years
8 years - (TCO 6) Hyde Inc. is comparing several alternative capital budgeting projects as shown below:Projects A B CInitial Investment $110,000 $90,000 $50,000Present value of cash inflows $100,000 $100,000 $60,000
Using the
profitability index, rank the projects, starting with the most attractive.
(Points : 5)
A, C, B.
A, B, C.
C, A, B.
C, B, A.
A, B, C.
C, A, B.
C, B, A.
- (TCO 6) Cleaners, Inc. is considering purchasing
equipment costing $30,000 with a six-year useful life. The equipment will
provide cost savings of $7,300 and will be depreciated straight-line over
itsuseful life with no salvage
value. Cleaners requires a 10% rate of return. What is the approximate net
present value of this investment? (Points : 5)$13,800
$1,794
$886
$2,748 - (TCO 7) Which of the following would not appear as a
fixed expense on a selling and administrative expense budget? (Points : 5)Freight-out
Office salaries
Property taxes
Depreciation - (TCO 7) A company budgeted unit sales of 102,000 units
for January, 2008 and 120,000 units for February, 2008. The company has a
policy of having an inventory of units on hand at the end of eachmonth
equal to 30% of next month’s budgeted unit sales. If there were 30,600
units of inventory on hand on December 31, 2007, how many units should be
produced in January, 2008 in order for the company to meet its goals?
(Points : 5)107,400 units
102,000 units
96,600 units
138,000 units
- (TCO 8) Standards that are based on efficient activity
with allowances for unavoidable losses are called _______ (Points : 5)basic standards.
maximum efficiency standards.
currently attainable standards.
expected standards. - (TCO 9) A static budget is appropriate for __________
(Points : 5)variable overhead costs.
direct materials costs.
fixed overhead costs.
none of these. - (TCO 9) If the activity level increases 10%, total
variable costs will ___________. (Points : 5)remain the same
increase by more than 10%
decrease by less than 10%
increase 10% - (TCO 9) At the high level of activity in November,
7,000 machine hours were run and power costs were $12,000. In April, a
month of low activity, 2,000 machine hours were run and power costs
amountedto $6,000. Using the high-low method, what is the estimated fixed
cost element of power costs? (Points : 5)$12,000
$6,000
$3,600
$8,400 - (TCO 10) Which of the following statements regarding
budget reports is incorrect? (Points : 5)The cost of budget reports should not outweigh the
benefits.
Budget reports are used for planning, control, and information.
Reports prepared for upper management typically have fewer details than reports prepared for lower-level managers.
Reports are prepared more frequently for upper management than for lower-level managers.
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