Comprehensive Budget Exercise

Module 7

Nicole Savinda
Seton Hill University
February 2021
1)
MEMORANDUM

TO: Vice President Hunt

FROM: Nicole Savinda
DATE: February 26, 2021
SUBJECT: 20% Increase in Test A Volume

I am writing to you today to show you the benefits of increasing our volume for Test A by 20%. I am aware
that you have some reservations about implementing this change. I hope you find the following information
helpful.
As you can see in the image below, the cost per unit of Test A, B and C all decrease with the 20% increase in
volume of Test A. The reason for this decrease is because the fixed costs change based on the total number of
units produced. So, that fixed cost of $742,500 is being spread out among the 31,637 units produced after the
increase as opposed to the 29,237 units originally produced.
Before the 20% Increase

After the 20% Increase

We also see an increase in Revenue after Expenses after this 20% increase in volume. The increase in revenue
is greater than the increase in expenses. The images below show the Revenue after Expenses before and after
the increase.
Before the 20% increase After the 20% increase
2)
MEMORANDUM

TO: Vice President Hunt

FROM: Nicole Savinda
DATE: February 26, 2021
SUBJECT: 25% Increase in Benefit Costs

In regards to your concerns about increasing the benefit costs for employees, I am writing today to show you
how a 25% increase in benefit costs will affect other finances within the company.
After implementing a 25% increase in benefit costs, the new Benefit % of Salary will increase from 25% to 31%.
This change will also increase the Total Labor Expense. Before the increase, it is $1,178,096; after the
increase, it is $1,237,001.
By increasing this cost, we will also see an increase in Fixed Cost per Unit. In 2020, our Fixed Cost per Unit was
$65.69. If we implement this change in 2021, our Fixed Cost per Unit will increase to $67.71.
As you can see in the images below, this change will decrease our Revenue after Expenses by $58,904. While
that is not a significant change in the grand scheme of things, it is something to consider.

Before the 25% Increase After the 25% Increase

I know this is a big decision…I hope this information helps to make it easier.
3)
MEMORANDUM

TO: Capital Equipment Committee

FROM: Nicole Savinda
DATE: February 26, 2021
SUBJECT: Equipment Purchase

I understand that you are considering the purchase of equipment that will increase out depreciation expense
by 28%. The purchase of this equipment will increase our Test C Volume by 6%. I have done some research
on how this purchase will affect our other finances.

Before the Equipment Purchase After the Equipment Purchase

As you can see in the images above, the purchase of this equipment will affect every aspect of our income and
expenses.
Based on the amounts shown above, we will see the categories increase by the following amounts:
Gross Revenue - $511,475
Contractual Adjustment - $332,458
Bad Debt Allowance - $15,345
Net Revenue - $163,672
Supply Expense - $31,996
Other Expenses - $99,400
Revenue after Expenses - $32,277
After looking through all of the numbers, we see that the cost of increasing Test C Volume by 6% will offset the
purchase of the new equipment. The proof is seen as an increase in Revenue after Expenses.
4)
MEMORANDUM

TO: Senior Management

FROM: Nicole Savinda
DATE: February 26, 2021
SUBJECT: Increased Supply Costs

I understand that there is some concern with the affect this increase supply cost is going to have on our
revenue, unit cost and profit. I am writing today to supply you with some additional information regarding
this increase. I hope you find it helpful.

In the images on the right, we see the

revenue, expenses, and profit per unit for
2020.
5)
We see that our Revenue after Expenses
was $2,632,036.

Our profit per unit for Test C was $187.38.

The total cost for Test A was $179.61, while

the total cost for Test B was $117.30.

In the images on the left, we see the

projected revenue, expenses, and profit
(per unit) for 2021 given the increase in
supply cost.

We see that our Revenue after Expenses

will decrease by $109,766.

Our profit per unit for Test C will also

decrease, by $9.61..

The total cost for both Test A and Test B

will increase by $1.29 per unit.