Scenario
You are a department manager for a distribution team that packages and ships products from a warehouse location to fulfill customer orders. Your company has been acquired by a larger firm. The new owners are requesting that each department manager prepare a master budget for the upcoming year and submit it for approval. The submission must include a written justification of the requested amount and at least one risk mitigation action to control or reduce costs.
The information available to meet this request includes:
- The department’s expenses, staffing, and output for the past 12 months;
- Metrics, financial and operational, that can be used to compare the department’s performance and output to a department that provides similar distribution support to another division of the company;
- One potential efficiency project with two available financing options;
- Data on the company’s historic employee practices such as annual raises and bonuses; and
- The level of output that the department must meet in the upcoming year based on the new owners’ sales goals.
Instructions
Using the information provided, as well as relevant economic data researched independently, make decisions about:
- The staffing level required to meet the expected output requirements;
- The annual raises and bonuses that should be included in the budget;
- Whether the efficiency project option should be implemented, and if so, using which financing option; and
- The cost control (i.e. risk mitigation) action(s) for implementation.
From your decisions, prepare a master budget for the upcoming year in Excel. Then, prepare a written justification, memo-style, for the budget that discusses your decisions and the rationale for each. Include support for your decisions from your analysis of the data and the financial and operational metrics (historical and expected) as well as at least one external economic or industry source.
In the justification memo, include one visual (chart, graph, etc.) created from the data. The purpose and type of visual selected should be based on the data being highlighted. Examples include a summary pie chart of the total budget, a bar chart comparing the department’s historical metrics to the expected metrics with the new budget, or costs across time to implement the efficiency project using the recommended financing options.
Submit an Excel file with the new master budget and a justification memo with embedded visual.
Budget Prior 12 Months
| Warehouse Distribution Budget | (Warehouse budget covers operating expenses only; product sales, corporate expenses such as taxes, etc. are covered by other company departments.) | |||||||||||||||
| Year Ending December 31 | Formulas | |||||||||||||||
| Statement in U.S. Dollars | Actual | Actual | Actual | Actual | Actual | Actual | Actual | Actual | Actual | Actual | Actual | Budget | ||||
| Expenses | January | February | March | April | May | June | July | August | September | October | November | December | Total Year | Comments | ||
| Warehouse Operations | ||||||||||||||||
| Receiving Team | ||||||||||||||||
| Employee Wages Including Overtime | 7,785 | 7,455 | 7,556 | 7,069 | 7,313 | 7,042 | 7,293 | 6,825 | 7,562 | 7,556 | 7,581 | 7,324 | 88,361 | See Staffing worksheet | ||
| Employee Bonus and Benefit Programs | 1,946 | 1,864 | 1,889 | 1,767 | 1,828 | 1,761 | 1,823 | 1,706 | 1,891 | 1,889 | 1,895 | 1,831 | 22,090 | See Staffing worksheet | ||
| Stocking Team | ||||||||||||||||
| Employee Wages Including Overtime | 19,811 | 18,969 | 19,230 | 18,250 | 18,609 | 18,369 | 17,969 | 18,369 | 19,245 | 18,230 | 18,748 | 18,868 | 224,667 | See Staffing worksheet | ||
| Employee Bonus and Benefit Programs | 4,953 | 4,742 | 4,808 | 4,563 | 4,652 | 4,592 | 4,492 | 4,592 | 4,811 | 4,558 | 4,687 | 4,717 | 56,167 | See Staffing worksheet | ||
| Receiving and Stocking Operations | ||||||||||||||||
| Equipment Rentals | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 3,000 | 36,000 | 1 warehouse forklift for every 2 receiving and stocking employees @ $500 per month per truck | ||
| Picking Team | ||||||||||||||||
| Employee Wages Including Overtime | 31,683 | 27,777 | 30,752 | 28,769 | 29,761 | 27,777 | 28,944 | 28,333 | 30,777 | 30,752 | 30,784 | 29,629 | 355,738 | See Staffing worksheet | ||
| Employee Bonus and Benefit Programs | 7,921 | 6,944 | 7,688 | 7,192 | 7,440 | 6,944 | 7,236 | 7,083 | 7,694 | 7,688 | 7,696 | 7,407 | 88,935 | See Staffing worksheet | ||
| Packing Team | ||||||||||||||||
| Employee Wages Including Overtime | 59,648 | 52,294 | 57,898 | 54,162 | 56,030 | 52,294 | 52,791 | 52,294 | 57,944 | 57,898 | 54,529 | 54,876 | 662,658 | See Staffing worksheet | ||
| Employee Bonus and Benefit Programs | 14,912 | 13,074 | 14,475 | 13,541 | 14,008 | 13,074 | 13,198 | 13,074 | 14,486 | 14,475 | 13,632 | 13,719 | 165,665 | See Staffing worksheet | ||
| Picking and Packing Operations | ||||||||||||||||
| Equipment Rentals | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 2,100 | 25,200 | 1 order picker forklift for every 2 picking employees @ $300 per month per truck | ||
| Equipment Depreciation | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 12,000 | $1,000 per month continues in new year | ||
| Supplies – Customer Shipments | 100,623 | 90,104 | 97,669 | 91,589 | 94,519 | 89,247 | 90,529 | 89,534 | 97,747 | 96,823 | 94,459 | 94,500 | 1,127,343 | See General Info for rate per order | ||
| Third Party Shipping (UPS, FedEx) | 536,654 | 480,555 | 520,901 | 488,474 | 504,101 | 475,984 | 482,820 | 477,513 | 521,316 | 516,388 | 503,780 | 504,000 | 6,012,486 | See General Info for rate per order | ||
| Sub-Total Expenses | 792,036 | 709,878 | 768,965 | 721,476 | 744,361 | 703,184 | 713,195 | 705,423 | 769,573 | 762,356 | 743,892 | 742,971 | 8,877,308 | |||
| Warehouse General & Administrative | ||||||||||||||||
| Rent | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 20,000 | 240,000 | Remains fixed in new year; warehouse has capacity for 50% growth in volume | ||
| Insurance | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 6,667 | 80,000 | Remains fixed in new year | ||
| Repairs and Maintenance | 5,650 | 2,800 | 8,820 | 1,000 | 18,270 | Varies based on equipment | ||||||||||
| Utilities | 1,840 | 1,693 | 1,803 | 1,858 | 1,877 | 1,849 | 1,950 | 1,987 | 1,822 | 1,766 | 1,748 | 1,900 | 22,094 | Average of $1,840 per month | ||
| Licenses and Fees | 12,000 | 12,000 | Remains fixed in new year | |||||||||||||
| Administrative and Management Salaries | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 31,183 | 374,200 | See Staffing worksheet | ||
| Employee Bonus and Benefit Programs | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,338 | 11,105 | 135,827 | See Staffing worksheet | ||
| Miscellaneous | 368 | 55 | 147 | 530 | 222 | 500 | 1,822 | |||||||||
| Shrinkage | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 23,628 | 283,541 | See Performance Metrics for % and General Info for values | ||
| Supplies – Office | 35 | 20 | 88 | 45 | 76 | 10 | 150 | 22 | 65 | 100 | 611 | |||||
| Sub-Total Expenses | 95,060 | 94,530 | 100,413 | 106,822 | 97,539 | 94,742 | 95,307 | 94,804 | 103,608 | 94,605 | 94,852 | 96,083 | 1,168,364 | |||
| Net Operating Expense | 887,095 | 804,407 | 869,378 | 828,298 | 841,900 | 797,925 | 808,502 | 800,227 | 873,181 | 856,961 | 838,743 | 839,054 | 10,045,673 | |||
| Beginning of Year Budget | 10,000,000 | |||||||||||||||
| Variance | (45,673) | |||||||||||||||
| Variance % | -0.46% |
Staffing Prior 12 Months
| Prior Year Staffing by Team | Monthly Salary | Hourly Rate | Overtime Rate | Avg Hours per Month | Avg OT Hours per Month | Bonus % | Benefits % | Comments | |
| Receiving Team 1 | $ 13.50 | $ 20.25 | 173.3 | 5.0 | 5% | 20% | Annual raises for the receiving team have averaged 4% in each of the past 3 years | ||
| Receiving Team 2 | $ 13.50 | $ 20.25 | 173.3 | 5.0 | 5% | 20% | Benefits were 20% of wages in the prior year; HR has informed your group that this percent increases to 22% in the new year | ||
| Receiving Team 3 | $ 13.50 | $ 20.25 | 173.3 | 5.0 | 5% | 20% | |||
| Receiving Team Open | $ – 0 | 173.3 | 5.0 | 5% | 20% | ||||
| Receiving Team Open | $ – 0 | 173.3 | 5.0 | 5% | 20% | ||||
| Stocking Team 1 | $ 12.50 | $ 18.75 | 173.3 | 2.0 | 5% | 20% | Annual raises for the stocking team have averaged 3% in each of the past 3 years | ||
| Stocking Team 2 | $ 14.00 | $ 21.00 | 173.3 | 2.0 | 5% | 20% | Benefits were 20% of wages in the prior year; HR has informed your group that this percent increases to 22% in the new year | ||
| Stocking Team 3 | $ 14.00 | $ 21.00 | 173.3 | 2.0 | 5% | 20% | |||
| Stocking Team 4 | $ 13.50 | $ 20.25 | 173.3 | 2.0 | 5% | 20% | |||
| Stocking Team 5 | $ 13.50 | $ 20.25 | 173.3 | 2.0 | 5% | 20% | |||
| Stocking Team 6 | $ 13.50 | $ 20.25 | 173.3 | 2.0 | 5% | 20% | |||
| Stocking Team 7 | $ 13.00 | $ 19.50 | 173.3 | 2.0 | 5% | 20% | |||
| Stocking Team 8 | $ 13.00 | $ 19.50 | 173.3 | 2.0 | 5% | 20% | |||
| Stocking Team Open | $ – 0 | 173.3 | 2.0 | 5% | 20% | ||||
| Stocking Team Open | $ – 0 | 173.3 | 2.0 | 5% | 20% | ||||
| Stocking Team Open | $ – 0 | 173.3 |