Whiz Calculator Case Study

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Currently, Whiz Calculator is estimating the budget for the coming year’s selling expenses as if it is comprised of only fixed expenses. President Riesman finds this method unsatisfactory for two major reasons: 1. It is difficult to judge how good the estimates made by the department heads really are; and 2. Selling conditions fluctuate over time and there is no way to account for these changes in the selling expenses once the budget is set for that year. Thus a new budgeting method is being researched at this time. The new method, if adopted, would be based on both fixed and variable costs. The fixed costs will be those incurred at the minimum sales volume and the variable costs would be expressed as an amount per sales dollar.…show more content…
office salaries, travel expenses, advertising, social security). Both methods do not budget enough for postage. The total selling expenses for this month with the new method were $524 over the actual amount, compared to the current method that ended up being $3,581 under the actual amount. Although the new budget seems to put the company in an “unfavorable” position of having to add more money to the budget as they go, it is important to look at how much closer the budgeted amount is to the actual amount spent. From a monthly basis, the new method, that includes both fixed and variable costs, is more precise. However, this is difficult to fully compare as there has been no year-to-date analysis done for the new budget at this time. From the current analysis it is recommended that the company implement the new method, but also try to dig deeper into what constitutes a fixed or variable expense in response to sales volume. Knowing that they are trying to alter their budgeting procedure to be more accurate, the company should focus on each expense to determine how variable it really is with sales and what other factors may be involved. This will help to uncover causative expenses (i.e. expenses that are directly affected by sales) versus inappropriate correlated expenses (i.e. a certain expense is dependent on another factor that is dependent on sales or another factor). Whiz Calculator should also try to consider implementing changes to this new method that

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