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10.6 Operating Budget

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Week 7
10.6 Operating budget represents level of various activities as: purchasing, production, and sales. Financial budgets represent level of activities such as income statement, cash flow, and balance sheet. Operating budget also helps with expenses and revenue over a period of time. It also involves with various operations in an organization. Some roles of operating budget are labor hiring, training, production, and sales. On the other hand financial budget can help some business with future concern of financial position, and it can also help summarize financial operating budgets. Some roles of financial budget are balance sheet, and income statement.
10.11 capitals spending according to book has to do with operating plans. It is also …show more content…

This also means that investment or revenues levels are not controlled.

11.22 The different residual income and economic value added are residual income reports the net income less than the cost of capital. Whereas economic value added adjust report income and also the assets level.

11.44 a
Division Investment div. operating income Sales Turnover (sales/investment) Return investment (sales margin X turnover) Sales margin (division / …show more content…

division E has a much higher turnover, E has more sales in investment per dollars, and division F has a higher sale margin. Division G has the highest in return and sales margin than the other two. G also has the lowest in turnovers from all three divisions. E has the highest in turnover.

C.) E F G
Operating income $75,000 $91,000 $176,000
Cost of capital 8%Xdivision investment -46,000 (575,000x8%) -56,000(700,000X8%) -80,000(1,000,000X8%)
Residual income $29,000 $35,000 $96,000

11.59 (a)
Net book Return on investment = Income/netbook values = $3,000,000/ 1+10,000) = 29,997%

Historical return investment= income/historical cost = $3,000,000/$5,000,000+10,000+100,000 = 58.71%

b.) net book economic values added=income-req. return on investment economic values added = $3,000,000 – (10,001X15%) = $2,998,499.85
Historical cost economic value added=income-req. return on investment Economic value added= $3,000,000-(5,110,000X15%)

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