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emplaw

emplaw

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Published by hls13bro
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Published by: hls13bro on Dec 17, 2012
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erBudget
nsibilitym9
ver 207"of salesof books, music,andelectronicsccuronline.fyou'reoneof the millionsf customersorldwidewhopointsandclickso buyyourbooksandCDsonAmazon.com,henyou'repartof Amazon.com'strategyo"getbig fast." Thisstrategy ncreasedAmazon.com'sales, utat a cost.Spendingwasout ofcontrol.Therewasnobudget,and managersparedno expenseo help hecompanygrow.Asa result,Amazon.comost more han$860mil/ion n 2000.Foundernd CEOJeff Bezos ad o turnthisseaof redink ntoincome.Bezosetup a budget orAmazon.com'slanof action.Now,eachdivisionbudgetsbothsalesand expenses.n weeklymeetings,managersompareactual esultso the budget,whichhelps hemcor-rectproblems uickly.
 
Chapter0
The result?Between000and2002,Amazon.com'salesncreased42%.Wirh suchanincreasensales,ou'dexPectexpenseslso toincrease.utAmazon.com'sew budgethelpedmanagers ut operatingexpenses.How did thecompanydecreasexPenseshen saleswereincreasingo dramatically?he budgethelpedAmazon.comeduceorder-fillinganddistributionostsby 5"/".Switchingolower-cost omputersys-temsreducedtechnicalndcontent"operatingostsby 20%.Theesult?Amazon.comeportedts first-everncomerom operationsn 20A2.By2Q04,ncomerom operationsad isen o over$588million.
Sources:atrinaBrooker,BeautifulDreamer,"ortune,December8,2000,pp.234-239;FredVogelstein,Bezos,"Fortune, eptember,2002,pp. 186-187;FredVogelstein,WhatWentRight2002,"Fortune,December0,2002,p. 166;NickWingfield,survivalStrategy:mazonTakesPagerom Wal-Mart oProsper nWeb,"Wall StreetJournal,November22, 2002,p.41;FredVogelstein, MightyAmazon,"Fortune,May26,2003,pp. 60-74'm
LearningObjectives
Mlt""rnwhymanagerssebudgetsMer"p"reanoperatingudget
ffier"p"reinancialudget
flUr"sensitivitynalysisn budgetingffier"p"teperformanceeportsor responsibilityenters
P.rh"pr,likeAmazon.com,you've prepareda budgetto ensurehatyouhaveenoughcashtopay yourexpenses.hebudgetforcesyoutoplan.Ifyourbudgetedcashnflowfalls short ofexpenses,oucando one or bothof thefollowing:oIncreaseyourcashnflow(bytaking on ajobora studentloan)..Cutyourexpenses.In additiontoplanning,your personalbudgetcanhelpyoucontrolexpenses.To stay withinyourgrocery budget,you maybuymacaroniand cheesenstead ofshrimp.Attheend ofthemonth,ifyourbank balances lesshanexpected,youcancompareyouractualcashnflowsand expensesoyour budget to seewhy.You needtoknow whethercashnflowsarelowerthanexpectedor expensesare higherthanexpectedo knowwhat correctiveaction totake.As Amazon.comlearned,t's easyorspendingogetout of controlifyoudon'thaveabudget.That's whyeveryone,rom individualslikeyoutocomplexinterna-tional organizationslike Amazon.com,usesbudgets.Careful budgetinghelps bothindividualsand businessestayout of troublebyreducing theriskthattheywillspendmorethan theyearn.
 
The MasterBudgetndResponsibilityccountingAs you'llsee hroughoutthis chapter, knowing howcostsbehavecontrnuesobe importantin formingbudgets. Totalfixed costswillnot changeasvolumechangeswithin the relevantrange. However,total variable costs mustbeadjustedwhen salesvolume isexpectedofluctuate.
WhyManagersUseBudgets
539Let'scontinueourstudy of budgetsby moving fromyourpersonal budgettoseehowasmallservicebusinessdevelopsa simple budget. Assumehatyoubegin anonline servicethat providestravel itinerariesfor leisuretravelers.Youwant to earn$SSOa month tohelpwith yourcollegeexpenses.Youexpect to sell 20 itinerariespermonthat apriceof$30each.Overthepastsix months, you paid yourInternetserviceprovideran averageof$18a month and youspentan additional$20permonthonreferencematerials.Youexpect thesemonthlycosts to remainabout the same. These areyourmonthly fixedcosts. Finally, youspend 5"/. ofyoursales evenues or banner ads onother travelWebsites.Becauseadvertising costsluctuate with sales evenue,hesecostsarevariable.Exhibit10-1shows howto computebudgetedevenuesand thensubtractbud-getedexpensesoarrive at budgetedoperating income.
ServiceCompany udget
Budgetedsales evenue(20x$30)Lessbudgetedexpenses:Internetaccess xpenseReferencematerialsexpenseAdvertisingexpense5% x$600)TotalexpensesBudgetedoperatingincome
Ifbusinessgoesaccordingto plan,youwillnotmeetyour$SS0permonthoperatingincome goal.Youwill havetoincreaseevenueperhapshroughword-of-mouthadvertising)or cut expensesperhapsby finding a less-expensiventernetaccessrovider).
Umf;mgfiuxdgetmmP$mmmd fimmtnmfr
Largeinternationalfor-profitcompaniessuchasAmazon.comandnonprofitorgani-zationssuch as Habitatfor Humanityusebudgetsorthe sameeasons oudoin yourpersonalifeorin yoursmall business-to planand control actions andthe relatedrevenuesandexpenses.Exhibit10-2showshowmanagers use budgetsn fulfillingtheirmajorresponsibilities.First,they develop strategies-overallbusinessgoalsikeAmazon.com'sgoalto expand its internationaloperationsor Gateway'sgoalto be avalueleadern the personalcomputermarket while diversifying ntoother markets.Then,companiesplanand budget forspecificactions oachievehose goals.The nextstep isto act. Forexample,Amazon.com recently plannedfor andthen addedtheMarketplaceauction featureto its\feb sites for the United Kingdom,GermanyandJapan.AndGateway is leaningonitssuppliers tocut costs, while at the sameime it ispumpingout new productssuch as plasma TVsand audio and videogear.Learnwhy managers
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