Anish Blackbook-1

Budget Estimation of Sunil’s Tutorial
Table of Contents
Chapter 1: Introduction and Research Methodology ................................................... 3

1.1 Project Overview .......................................................................................................... 3
1.1 Research Methodology ................................................................................................. 6
1.2 Limitations of the Project Overview ............................................................................. 6
Chapter 2: Sunil’s Tutorial – Company Overview ........................................................ 7

2.1 History of Sunil’s Tutorial ............................................................................................ 7
2.2 Objectives and Advantages ........................................................................................... 9
2.3 Unique Selling Proposition ........................................................................................... 9
2.4 The Road Ahead ........................................................................................................... 9
2.5 Features of Sunil’s Tutorial .......................................................................................... 9
2.6 Work Culture .............................................................................................................. 10
Chapter 3: Introduction to Budgeting .......................................................................... 11

3.1 Principles and Importance of Budgeting..................................................................... 11
3.2 Characteristics of Budgeting ....................................................................................... 15
3.3 Types of Budget .......................................................................................................... 17
3.4 Budget Utility.............................................................................................................. 21
3.5 Budget Hierarchy ........................................................................................................ 23
Chapter 4: Budget Variance .......................................................................................... 25

4.1 Variance Analysis ....................................................................................................... 27
4.2 Types of Variance ....................................................................................................... 27
4.3 Basis of Calculation .................................................................................................... 28
4.4 Functions of variance analysis: ................................................................................... 31
4.5 Causes of Budget Variance ......................................................................................... 31
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Chapter 5: Budgeting and Estimating Cost.................................................................. 33

5.1 Budgeting Process ....................................................................................................... 33
5.2 Advantages and Disadvantages................................................................................... 37
5.3 Estimating Project Budget .......................................................................................... 41
5.5 Learning Curve ........................................................................................................... 46
Chapter 6: Trend Analysis of Sunil’s Tutorial............................................................. 48
Chapter 7: Budget Analysis ........................................................................................... 55

7.1 Factors affecting Budget ............................................................................................. 55
Chapter 8: Conclusion .................................................................................................... 57
Chapter 9: Bibliography................................................................................................. 58
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Chapter 1: Introduction and Research Methodology
1.1 Project Overview

An overview of Tutorials in India:
One out of every four students in India takes private tuition and in a couple of
states more than three out of every four students, or over 75%, opt for it, according to a
report by the National Sample Survey Office (NSSO).
Taking private coaching classes individually or in a group, at home or at any other place,
by a single or more tutors for different reasons has become a norm, the survey
underlined. More students opting for private tuition reflects poorly on the quality of
education in schools and colleges.
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―In this survey...it is noted that in states like Tripura (around 81%) and West Bengal
(around 78%) majority of students were taking private coaching (combining school
education and higher education), whereas at all-India level 1/4th of students were taking
private coaching,‖ the NSSO survey said.
What is interesting is that though private coaching is prevalent across India, in eastern
states it is very high. For example, in West Bengal, 89% of male secondary and higher
secondary students avail of private tuition. For the same category of pupils, the national
average is 37.8%. Tripura, a close second at 87%, followed by Bihar (67.2%) and Odisha
(63.4%) top the list of states where maximum number of students opt for private
coaching. For a similar category of students at the primary level, Tripura (78.3%)
replaces West Bengal (71.1%) at the top of the list. Daman and Diu (58.8%), Chandigarh
(49.4%), Bihar (46.8%) and Odisha (45%) are the other top states and Union territories
where students avail of private tuition.
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Even in Delhi, 32.2% of the male students and 36.6% of the female students at primary
schools avail of private tuition, the NSSO survey showed.
Private tuition is thriving because the education system in India has deteriorated over the
last several years. While quality of teaching has gone down across verticals, the exam
system remains the same. The outcome—students and parents will believe in
supplementary education like coaching for passing an exam or cracking a competitive
exam
It’s difficult to believe that in Uttar Pradesh, the dependency on private tuition is low.
According to the data, in Uttar Pradesh only 12.2% of male students are availing of
tuition at primary level and 13.7% in upper primary level as against the national average
of 23.1% and 28%, respectively. Similarly, only 15.8% of Uttar Pradesh students avail of
coaching at graduation level and 9.5% at post-graduation and above levels are availing of
private coaching against the national average of 20.3% and 13%, respectively.
And if you think that private tuition is just a school phenomenon, change your mind.
According to NSSO data, 20% of Indians pursuing degree courses and 13% pursuing
postgraduate courses and above avail of private tuition.
This issue is not India-specific and exists in many developing and developed countries.
According to a research paper by Accountability Initiative, part of the Centre for Policy
Research think tank, 70% of students in Japan get private tuition by the time they
complete middle school; 83% students in Malaysia receive tutoring by the time they
reach senior secondary school.
Similarly, 83.1% of primary school students, 92.8% of middle school students and 87.8%
of high school students in South Korea attend private tuition, according to the research
paper.
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1.1 Research Methodology
1) To understand how to do Budget Estimation

2) To maximize long run profit
3) To maximize short run profit
4) To obtain a target rate of return on investment
5) Decisions regarding fees structure
1.2 Limitations of the Project Overview
1) The information provided may not be completely reliable.

2) All the analysis and recommendations will need reconsideration.
3) As the Sunil’s Tutorial reports are very confidential the information is not
disclosed completely.
4) Some analyses have been done for backward data to predict the future trend and
make suggestions.
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Chapter 2: Sunil’s Tutorial – Company Overview
2.1 History of Sunil’s Tutorial
Sunil’s Tutorial is a private academic coaching program founded by Mrs. Sunita

Mirwani, Mr. Sunil Mirwani and Mr. Deepak Mirwani in the year 1991. The first branch
was set up at Versova (Andheri West) and the next four years they mainly concentrated
on the promotion of the classes and also to give quality teaching to the students who took
admission. In the year 1995 a new branch was started at Seven Bungalows not very far
from the original one, but only lasted for three to four months due to certain reasons.
Next was the introduction of Computers in the classes which made things very easy for
the professors as well as the students and it started of really well but due to the high
maintenance cost of the machine there were losses faced and in the next two years the
computers were taken out. The year 2000 was a start of a new branch at Jaiwant Society
till 2005. In these five years the profit level was almost the same and did not increase
much as there was recession in the Indian Economy after the 1997 Southeast Asian
Market Crash, in 1999 the Indian Property market also crashed. In the year 2005 the
branch at Jaiwant Society and the Original one at Versova were shut due to some definite
reasons.
This was the start of Sunil’s Tutorials and for the promotion in the initial stages of the
classes various methods of marketing were used. Some of them are as follows:
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Year Method of Promotion Cost
Rs.60 per thousand

Distribution of Handbills/Leaflets.
for distribution and
1991-2000 (50,000 per week)
Rs.6000 for printing.
Posters (1000 posters every month)
Rs.600 to Rs.800 per
wall.
Rs.1,20,000 for the
1995 Transport Services (Contessa Car and car.

Matador Van) Rs.500 Petrol per
week
Van outsourced at
Rs.100 per student
Incorporation of Computers (3 HP Rs.45,000 each.

1998
Computers and a supervisors) Rs.12,000 p.m.
In the aforementioned year they rented a property in RNA Lokhandwala to start of their
coaching classes again. In the following year another property was rented and also for
further expansion they hired more professors. Due to some adequate reasons the
professors discontinued their work at Sunil’s Tutorials, later in 2007 with one of the
property, they were working towards progress but due to some unfortunate space issues,
later in 2012 they got shifted to a property where the lectures are being held currently.
In the year 2005 they tied up with various publishers and outsourced prospectus that
acted as a source of Marketing. The year 2009 saw the inception of webinars which are
like seminars online. Lectures uploaded by teachers which can be viewed by students by
logging onto the website.
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2.2 Objectives and Advantages
1) Competent faculty.
2) Comprehensive study material.
3) Suitable batch timing.
4) Centralized location.
5) Pedagogy – 900 hours of interactive learning by a pool of highly qualified and
experienced faculty.
6) Small batch size so that each student receives personal attention, thus helping
them to grasp more.
2.3 Unique Selling Proposition
1) Personal attention to Students as there are small batches.

2) Recorded lectures for students.
2.4 The Road Ahead
With the increasing number of admissions there is an increase in space issues.

Therefore for further expansion a new property has been bought right adjacent to the
current one having an area of 600 square feet worth Rs.1 crore.
2.5 Features of Sunil’s Tutorial
1) Impart knowledge with understanding

2) Motivate them to score highly
3) Hone their abilities at problem solving
4) Educate and stimulate students minds
5) Encourage students to ―want to learn‖
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2.6 Work Culture
If there's one thing that defines the most successful companies, it's not their bottom line -
it's their values. At Sunil’s Tutorial, the values we stand by have made us who we are
today. They've shaped our culture, our work ethics, and our decisions; helping us push
the envelope and be more than what we were yesterday.
Client Value:
To surpass client expectations consistently.
Leadership by Example:
To set standards in our business and transactions and to be an exemplar for the industry
and ourselves.
Integrity and Transparency:
To be ethical and sincere in all our transactions.
Fairness:
To be objective and transaction-oriented, and thereby earn trust and respect.
Excellence:
To strive relentlessly; constantly improve ourselves, our teams, and our services and
products to become the best.
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Chapter 3: Introduction to Budgeting
Budgeting is a process. This means budgeting is a number of activities performed in

order to prepare a budget. A budget is a quantitative plan used as a tool for deciding
which activities will be chosen for a future time period.
In a business, the budgeting for operations will include the following:
1) Preparing estimates of future sales

2) Preparing estimates of future cash collections and disbursements
3) Preparing estimates of the future day-to-day activities of the organization
4) Summarizing these estimates into an income statement and balance sheet
The budgeted income statement and balance sheet are also known as pro-forma financial
statements. Once prepared and approved, the budgeted income statement and balance
sheet are used to control the future activities of the business.
3.1 Principles and Importance of Budgeting
Budgeting Principles
For those who have the task to develop budgets or to be involved in the process of
developing budgets, it is important to have a good knowledge of budgeting principles that
can make the difference in the financial health of the organization. Failure to engage in
sound budgeting processes would rank as one of the main reasons why companies and
organizations fail.
1) Be Conservative not Optimistic

The first principle of budgeting is to avoid budgeting on the basis that everything
will turn out as expected. Be very cautious about optimistic forecasts. Try to build in
a safety factor by tending to underestimate your income and overestimate your
expenses. There will always be unexpected events and therefore a common strategy
in developing a budget is to insert an additional expense called "contingencies". This
item in the expense budget is an insurance policy against the unforeseen.
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2) Team Work and Consultation

One of the most important principles of budgeting is that it requires teamwork and
consultation. Although one person may be responsible for the overall compilation of
the budget, one person should not be responsible for all the work involved. The task
of budgeting should be split and allocated among those individuals who have the best
chance of knowing what expenditure is likely to be needed and what income is
reasonable to expect. Involvement by many people in budgeting might slow the
process down, but the answer is far more likely to be accurate and dependable.
3) Allow plenty of Time

Budgeting is not an activity that is completed in a few hours. A good budget may
be worked on for several weeks, if not months, adding and changing figures as new
information comes to light. For this reason, budgeting is often referred to as an
iterative process. The budgeting process is lengthy because much research and
consultation has to be carried out before people involved in the process can be
confident of the figures they supply.
4) Excellence in Documentation
It is very important that the author(s) of the budget strive to produce documents
that can be read and understood by anyone. If budget workings are unclear and
figures are not clearly labeled even the author will, as time passes, have trouble
understanding where the figures come from and how the calculations were made. It
should be assumed that budgeting workings will be:
Circulated to many different people who may have lower levels of financial literacy
Useful again in a year's time when the budgeting process begins again. Unless
workings are well labeled it may be difficult to remember.
5) Provide Training
Ensure people who have a significant role in the budgeting process have a
reasonable understanding of the principles of budgeting, how it relates to the strategic
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and operational plans, and how everyone must live with the consequences of the
finalized budget in the year ahead. Training need only is a single meeting in which
those who have experience of budgeting provide knowledge to others involved who
are less experienced.
6) Get Sign Off

Another one of the important principles of budgeting is to ensure that all persons
formally involved in the budgeting process agree to the final iteration of the budget.
This agreement by those involved is often referred to as the "Sign Off". In other
words, those involved add their signature to the final iteration of the budget. This
ensures that there will be no argument later about who agreed to what.
Importance of Budgeting
1) Gives you control over your money – A budget is a way of being intentional about the
way you spend and save your money. It is said that with budgeting, you control your
money and not your money controls you. Budgeting saves you the stress of suddenly
having to adjust to lack of funds because you did not initially plan how to spend
them. It also helps you decide if you want to sacrifice short term spending like
buying coffee every day in exchange for a long term benefit like a cruise vacation or a
new HDTV.
2) Keeps you focused on your money goals – You avoid spending unnecessarily on
items and services that do not contribute to attaining your financial goals. If you are
working with limited resources, budgeting makes it easier to make ends meet.
3) Makes you aware what is going on with your money – With budgeting, you are clear
on what money is coming in, how fast it goes out, and where it is going to. Budgeting
saves you from wondering every end of the month where your money went. A
budget enables you to know what you can afford, take advantage of buying and
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investing opportunities, and plan how to lower your debt. It also tells you what is
important to you based on how you allocate your funds, how your money is working
for you, and how far you are towards reaching your financial goals.
4) Helps you organize your spending and savings – By dividing your money into
categories of expenditures and savings, a budget makes you aware which category of
expenditure takes which portion of your money. That way, it is easy for you to make
adjustments. Budget also serves as a reference for organizing your bills, receipts, and
financial statements. When all of your financial transactions are organized for tax
time or creditor questions, you save time and effort.
5) Makes you decide in advance how your money will work for you.
6) Enables you to save for expected and unexpected costs – Budgeting allows you to
plan to set aside money for emergency costs.
7) Enables you to communicate with your significant others about money – If you share
your money with your spouse, family, or anyone, a budget can communicate how you
use money as a group. This promotes teamwork on working for common financial
goals and prevents conflict on how money is used. Creating a budget in tandem with
your spouse will avoid conflicts and resolve personal differences on how your money
is spent. Budgeting teaches family members spending responsibility and
accountability.
8) Provides you with an early warning for potential problems – When you budget and
take a ―big picture‖ view, you will see potential money problems in advance, and be
able to make adjustments before the problem appears.
9) Helps you determine if you can take debt and how much – Taking debt is not
necessarily a bad thing if the debt is necessary or you can afford it. Budgeting shows
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you how much a debt load you can realistically take without being stressed or if
taking the debt load is worth it.
10) Enables you to produce extra money – In budgeting, you get to identify and eliminate
unnecessary spending like late fees, penalties and interests. These seemingly small
saving can add up over time.
3.2 Characteristics of Budgeting
1) The Budget Must Address the Enterprise’s Goals

Essentially, a budget must begin with the enterprise’s short and long-term
plans and goals. The budget should not just to recreate the enterprise’s previous
year’s results with slight changes. It must include valuable input from planning so
that the budget becomes a powerful guiding tool. When the budget addresses an
enterprise’s goals and objectives clearly, it is bound to be successful.
2) The Budget Must be a Motivating Tool

The budget should motivate and inspire all the people in the enterprise to
work toward attaining the enterprise’s goals. Furthermore, the budget must
encourage everyone to work together for the improvement of the organization.
The budget should not be viewed as a rigid plan, or as a device for top
management to use in assessing blame. Most often, the budget is successful when
managers and employees of an enterprise view the budget as an essential tool to
enhance their overall performance.
3) The Budget Must Have the Support of Management

The budget must undeniably have the support of management at all levels
of the organization. The support of both the top-level managers and the lower-
level managers is crucial to garner the support of the employees of the enterprise.
Hence, to be successful, it is critical for the budget to have the support of
management at every level within the organization.
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4) The Budget Must Convey a Sense of Ownership

To be successful, the budget must convey a sense of ownership to the
people in the enterprise who are given the responsibility of implementing the
budget. At no stage during its implementation, the budget should convey a sense
of restriction or be overbearing on the people responsible for implementing it. The
budget should not be imposed on them. Rather, the people responsible for its
implementation must have the necessary input into the budget’s development.
5) The Budget Should be Flexible

A key factor in the success of a budget is whether it is flexible or not.
Most successful budgets are flexible. A flexible budget permits an enterprise in
going ahead with plans that are strategically important to the enterprise. However,
a rigid budget becomes an excuse for not executing strategically important plans.
A flexible budget permits an enterprise to carry out essential unplanned and
unforeseen large maintenance works which benefit the enterprise. A rigid budget
does not permit this, thus hurting the enterprise in the long run.
6) The Budget Should be a Correct Representation

To be helpful, the budget should accurately represent what is anticipated
to happen. An inaccurate budget will not have the support of the managers and
employees directly affected by it. Furthermore, an inaccurate budget encourages
managers of an enterprise to cleverly fabricate ―budgetary slack‖ into their
budgets. Budgetary slack is nothing but budgeting lower revenues and higher
expenditure. This results in managers being unfairly rewarded whenever they
exceed their revenue targets or curtail their expenses. Hence, to be successful, a
budget should unquestionably be an accurate representation of what is actually
expected to occur.
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7) The Budget Should be Coordinated

The budget must be coordinated to smoothly operate within the different
business units of an enterprise. For example, the sales manager will strive to
increase the sales of the enterprise. However, the credit manager will be
extremely keen in limiting bad debt write-offs. Here, a prudent coordinated effort
to set up credit standards that both of them can profitably support should be
integrated into the budgeting process.
3.3 Types of Budget
Sales Production
Budget Budget
Financial Overheads
Budget Budget
Personnel Master
Budget Budget
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1) Sales Budget
A sales budget is an estimate of expected total sales revenue and selling expenses
of the firm. It is known as a nerve center or backbone of the enterprise. It is the
starting point on which other budgets are also based. It is a forecasting of sales for the
period both in quantity and value. It shows what product will be sold, in what
quantities, and at what prices.
The forecast not only relates to the total volume of sales but also its break-up product
wise and area wise. The responsibility for preparing sales budget lies with the sales
manager who takes into account several factors for making the sales budget.
Some of these factors are:
a) Past sales figures and trend

b) Estimates and reports by salesmen
c) General economic conditions
d) Orders in hand
e) Seasonal fluctuations
f) Competition
g) Government’s control.
2) Production Budget
Production budget is prepared on the basis of the sales budget. But it also takes
into account the stock levels required to be maintained. It contains the manufacturing
programs of the enterprise. It is helpful in anticipating the cost of production.
The nature of production budget will differ from enterprise to enterprise. For practical
purposes, the overall budget should be divided into production per article per month,
looking into the estimate of the likely quantity of demand. It is the responsibility of
production department to adjust its production according to sales forecast.
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It is made by the production manager keeping in mind the following important

factors:
a) The sales budget

b) Plant capacity
c) Inventory policy
d) Availability of raw-materials, labor, power, etc
The production budget is often divided into several budgets:
a) Material Budget- which fixes the quantity, quality and cost of raw materials
needed for uninterrupted production
b) Labour Budget- which specifies the requirements of labour in terms of the
number and type of workers for various jobs
c) Plant and equipment Budget- which lays down the needs of machines,
equipment and tools including their repairs and maintenance
d) Research and Development Budget- which specifies the estimated cost on
research and development for developing new products and for improving
existing ones.
3) Financial Budget
This budget shows the requirement of capital for both long-term and short-term
needs of the enterprise at various points of time in future. Its objective is to ensure
regular supply of adequate funds at the right time. An important part of the financial
budget is the cash budget.
Cash budget contains estimated receipts and payments of cash over the specified
future period. It serves as an effective device for control and coordination of activities
that involves receipt and payment of cash. It helps to detect possible shortage or
excess of cash in business. The financial budget also contains estimates of the firm’s
profits and expenditure i.e., the operating budget.
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4) Overheads Budget
It includes the estimated costs of indirect materials, indirect labour and indirect
factory expenses needed during the budget period for the attainment of budgeted
production targets. In other words, an estimate of factory overheads, distribution
overheads and administrative overheads is known as the overheads budget. The
capital expenditure budget contains a forecast of the capital investment. This budget
is prepared on departmental basis for effective control over costs.
The factory or manufacturing overheads can be divided into three categories:

a) Fixed
b) Variable
c) Semi Variable
This classification helps in the formulation of overhead budgets for each department.
5) Personnel Budget
It lays down manpower requirements of all departments for the budget period. It
shows labour requirements in terms of labour hours, cost and grade of workers. It
facilitates the personnel managers in providing required number of workers to the
departments either by transfers or by new appointments.
6) Master Budget
The Institute of Cost and Management Accountants, England defines master

budget as the summary budget incorporating all the functional budgets, which is
finally approved, adopted and applied. Thus, master budget is prepared by
consolidating departmental or functional budgets. It is a summarized budget
incorporating all functional budgets. It projects a comprehensive picture of the
proposed activities and anticipated results during the budget period. It must be
approved by the top management of the enterprise. Though practices differ, a master
budget generally includes sales, production, costs-materials, labour, factory overhead,
profit, appropriation of profit and major financial ratios.
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3.4 Budget Utility
Corporate Budget
Event
Personal Budget Management
Budget
Government
Budget
1) Corporate budget:
The budget of a company is often compiled annually, but may not be a finished
budget, usually requiring considerable effort, is a plan for the short-term future, typically
allows hundreds or even thousands of people in various departments (operations, human
resources, IT, etc.) to list their expected revenues and expenses in the final budget.
If the actual figures delivered through the budget period come close to the budget, this
suggests that the managers understand their business and have been successfully driving
it in the intended direction. On the other hand, if the figures diverge wildly from the
budget, this sends an 'out of control' signal, and the share price could suffer. Campaign
planners incur two types of cost in any campaign: the first is the cost of human resource
necessary to plan and execute the campaign. The second type of expense that campaign
planners incur is the hard cost of the campaign itself.
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2) Event management budget

A budget is a fundamental tool for an event director to predict with a reasonable
accuracy whether the event will result in a profit, a loss or will break-even. A budget can
also be used as a pricing tool. There are two basic approaches or philosophies, when it
comes to budgeting. One approach is telling you on mathematical models, and the other
on people.
The first school of thought believes that financial models, if properly constructed, can be
used to predict the future. The focus is on variables, inputs and outputs, drivers and the
like. Investments of time and money are devoted to perfecting these models, which are
typically held in some type of financial spreadsheet application.
The other school of thought holds that it’s not about models, it’s about people. No matter
how sophisticated models can get, the best information comes from the people in the
business. The focus is therefore in engaging the managers in the business more fully in
the budget process, and building accountability for the results. The companies that adhere
to this approach have their managers develop their own budgets. While many companies
would say that they do both, in reality the investment of time and money falls squarely in
one approach or the other.
3) Government budget:
The budget of a government is a summary or plan of the intended revenues and
expenditures of that government. There are three types of government budget: the
operating or current budget, the capital or investment budget, and the cash or cash flow
budget.
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4) Personal or family budget:

In a personal or family budget all sources of income (inflows) are identified and
expenses (outflows) are planned with the intent of matching outflows to inflows (making
ends meet). In consumer theory, the equation restricting an individual or household to
spend no more than its total resources is often called the budget constraint.
Elements of a personal or family budget usually include fixed expenses, monthly

payments, insurance, entertainment, and savings.
3.5 Budget Hierarchy
Most organizations plan spending and revenues in the framework of a budget

hierarchy. Planning begins with high level budgets, such as company-wide capital and
operating budgets.
In the organization-wide operating budget, individual line items may carry the names of
departments (e.g., "Marketing") or basic roles (e.g., "General management and
administration").
In the organization-wide capital budget, individual items are organized into categories
that may represent major components of the company's asset structure (e.g., "Property,
plant and Equipment").
In any case, this pair of high level budgets essentially covers spending for the entire
organization.
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Here are a few of the levels in one company's budget hierarchy:
Part of one company's budget hierarchy. Funding requests for the next budgeting cycle
normally start at the bottom. Requests pass from the bottom up through the organization
hierarchy, where they aggregate at the highest level. Budget Office staff and senior
managers start making spending decisions for the highest levels, and then move
downward.
Operating budgets are normally planned so as to represent a hierarchy. In the budgeting

process, senior managers first set spending levels for higher level categories such as the
"Marketing Budget" above. Then, managers at lower levels in Marketing further
apportion the marketing budget into lower level budgets for areas such as market
research, advertising, and events.
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Chapter 4: Budget Variance
When companies compare budgets with actual figures, there are often differences
called variance. Variance is the number obtained by subtracting the lower of the actual
and budget numbers for a particular item from the higher one. Reasons for variance can
include changes in sales, changes in material cost or changes in labor cost. Variance can
be favorable, if costs are lower or revenue is higher, or unfavorable for higher costs or
lower revenue. Variance results from cost or price changes and from volume changes.
In its simplest form a budget is a plan or forecast in the form of a list, showing spending
items and/or incoming revenue items, for a specific time period. The budget is "set" by
adding a budget figure for each item. As time passes, actual spending and revenues enter
the list to compare with original budget figures. Where budget and actual figures differ,
the difference is called a variance.
A company's operating budget, for instance, may forecast spending for "Employee
Training." The annual spending figure is set first, for high level planning. This is broken
down later, however, into monthly or quarterly figures.
Suppose that two quarters into the budget cycle, the item "Employee Training" looks
something like this:
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Employee training is a single budget item for one company. The budget initially contains
only the budget spending figures for each quarter. At the end of each quarter, however,
actual spending figures appear next to the budget figures. Variance then calculates as the
difference between these two figures.
Most budget analysts calculate a variance by subtracting the budget figure from the actual
spending figure. They normally report variance both in currency units and as a percentage
of the budget figure. The percentage figure is helpful, later, for variance analysis.
Plus and minus conventions for variances
Note incidentally, this example uses a reporting convention common in finance,

budgeting, and accounting. Here, figures in parentheses are negative values.
Note also that analysts also have two different and opposite sign conventions for
presenting variances. The example above uses the first convention, where variance
calculates as actual spending less the budget figure. Thus, a positive variance
means spending is over budget while a negative variance means spending is under
budget.
Not everyone follows this convention, however. Under the second convention, variance
calculates as the budget figure less the actual figure. With this latter convention,
therefore, an overspending variance is a negative figure.
Responding to budget variance
In the real business world, small differences between actual and budget figures are
normal and expected. Given a large variance, however, management will want to know,
immediately, exactly why actual results are so far off target. The answer to the "Why"
question may be obvious or it may require serious variance analysis. In any case,
management can respond with one or both of these actions:
a) Adjust the forecast to represent the new reality.

b) Control actual spending in the future, so as to bring the annual variance closer to zero.
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4.1 Variance Analysis
Variance Analysis, in managerial accounting, refers to the investigation of

deviations in financial performance from the standards defined in organizational budgets.
Variance analysis typically involves the isolation of different causes for the variation in
income and expenses over a given period from the budgeted standards.
So for example, if direct wages had been budgeted to cost $100,000 actually cost
$200,000 during a period. Variance analysis shall aim to identify how much of the
increase in direct wages is attributable to:
a) Increase in the wage rate (adverse labor rate variance)

b) Decline in the productivity of workforce (adverse labor efficiency variance)
c) Unanticipated idle time (labor idle time variance)
d) More wages incurred due to higher production than the budget (favorable sales
volume variance)
4.2 Types of Variance
1) Sales Volume Variance

2) Sales Mix Variance
3) Sales Quantity Variance
4) Sales Price Variance
5) Direct Material Price Variance
6) Direct Material Usage Variance
7) Direct Material Mix Variance
8) Direct Material Yield Variance
9) Direct Labor Rate Variance
10) Direct Labor Efficiency Variance
11) Direct Labor Idle Time Variance
12) Variable Overhead Spending Variance
13) Variable Overhead Efficiency Variance
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14) Fixed Overhead Spending Variance

15) Fixed Overhead Volume Capacity & Efficiency Variance
16) Fixed Overhead Total Variance
4.3 Basis of Calculation
Variance analysis highlights the causes of the variation in income and expenses
during a period compared to the budget. In order to make variances meaningful, the
concept of 'flexed budget' is used when calculating variances. Flexed budget acts as a
bridge between the original budget (fixed budget) and the actual results. Flexed budget is
prepared in retrospect based on the actual output. Sales volume variance accounts for the
difference between budgeted profit and the profit under a flexed budget. All remaining
variances are calculated as the difference between actual results and the flexed budget.
As you may have noticed, all variances other than the sales volume variance are basically
calculated as the difference between actual and flexed income & expenses. The
difference between flexed budget profit and the fixed budget profit is accounted for
separately in a single variance, i.e. sales volume variance.
This approach to calculating variances facilitates comparison of like with like. Hence, we
can compare the actual expenditure incurred during a period with the standard
expenditure that 'should have been incurred' for the level of actual production.
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Following is a graphical illustration of how variances are calculated using the flexed
budget approach:
Flexed budget is prepared using actual output. As actual

quantity is the 1.5 times of budgeted quantity, sales and
expenses have been 'flexed' to 1.5 times of the original
budget with the exception of fixed overhead which remains
the same under the marginal costing basis.
Budget Budget Actual
(Original) (Flexed) Result
Output (10,000 units) (15,000 units) (15,000 units)
Sales $1,000,000 The difference of
$300,000 represents
Sales Price Variance
$1,500,000 $1,800,000
Direct ($100,000) The difference of
Materials $50,000 represents
Direct Material Total Variance
($150,000) ($200,000)
The total variance can be analyzed into
material usage variance & material price
variance
Direct ($200,000) The difference of
Labor $50,000 represents
Direct Labor Total Variance
($300,000) ($350,000)
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labor efficiency variance & labor rate
variance
Variable ($300,000) The difference of
Overheads $50,000 represents
Variable Overhead Total Variance
($450,000) ($500,000)
variable Overhead Rate & Efficiency
variance
Fixed ($75,000) The difference of
Overheads $25,000 represents
Fixed Overhead Total Variance
($75,000) ($50,000)
Fixed Overhead Expenditure & Volume
variance
Total $325,000 $525,000 $700,000
The difference between budgeted profit

and profit under flexed budget ($200,000)
represents the Sales Volume Variance.
Sales Volume Variance can be further
analyzed into Sales Mix Variance & Sales
Quantity Variance
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4.4 Functions of variance analysis:
1) Planning, Standards and Benchmarks
In order to calculate variances, standards and budgetary targets have to be set in advance
against which the organization's performance can be compared against. It therefore
encourages forward thinking and a proactive approach towards setting performance
benchmarks.
2) Control Mechanism
Variance analysis facilitates 'management by exception' by highlighting deviations from

standards which are affecting the financial performance of an organization. If variance
analysis is not performed on a regular basis, such exceptions may 'slip through' causing a
delay in management action necessary in the situation.
3) Responsibility Accounting
Variance analysis facilitates performance measurement and control at the level of

responsibility centers (e.g. a department, division, designation, etc.). For example,
procurement department shall be answerable in case of a substantial increase in the
purchasing cost of raw materials (i.e. adverse material price variance) whereas the
production department shall be held responsible with respect to an increase in the usage
of raw materials (i.e. adverse material usage variance). Therefore, the performance of
each responsibility center is measured and evaluated against budgetary standards with
respect to only those areas, which are within their direct control.
4.5 Causes of Budget Variance
Budget variance is the term applied to a business situation when the amount spent
is greater than the budget set aside for the spending. For example, if a company budgets
$1,000 US Dollars (USD) for two new computers but the new computers cost $1,200
USD, then there is a budget variance of $200 USD. There are a number of common
causes for budget variance, including poor budgeting, poor logistical planning and
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increased product costs. Budget variance can be divided into several categories. These
include material variance, labor variance and sales variance. Identifying the causes of
each variance is useful because it helps people, businesses and organizations to better
prepare their next budget. Material variance concerns the cost of products. Using the
computer example from above, the computers may have been advertised in a catalog or
online at $500 USD apiece. If the computers are $600 USD when actually purchased,
there will be a variance.
All manner of products — from food to office supplies — are liable to increase or
decrease in cost. This is especially the case if natural disasters affect food prices or if the
product, such as gasoline, is dependent on oil prices. The introduction of new taxes or
increases in old ones also will have an adverse effect on the budget. Labor variance
involves the cost and contribution of employees to the company or organization. Most
companies will have a total wage budget. Similarly, a household will budget in line with
an expected number of people working an expected amount. Any unpaid leave or loss of
work will adversely affect the budget. If a company employs too many people or if their
employees’ productivity decreases, their cost will cause a budget variance. Staff
productivity partly affects sales variance. Most companies will set a target for sales
required for the company to break even. If sales dip below this budget, then the cost of
keeping the company running is more than the revenue it brings in. As with material
variance, sales variance can be attributed either to poor performance or bad luck.
For example, an ice cream vendor is likely to suffer if there is a cold summer, because
anticipated sales will decrease. Likewise, a shop that poorly organizes its products and
staff is also likely to see reduced sales and a budget variance. There is not much the ice
cream vendor can do to raise sales in cold weather, but the shop should have organized
itself better. There are multiple reasons for a budget variance, and these reasons are often
divided into uncontrollable and controllable variances. A well-prepared budget should
take variance into account by budgeting to spend less than the amount of money expected
to be available. Any spare money can be stored in a contingency fund.
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Chapter 5: Budgeting and Estimating Cost
5.1 Budgeting Process
Steps for developing a good budgeting process:
The budget process is the way an organization goes about building its budget. A good
budgeting process engages those who are responsible for adhering to the budget and
implementing the organization's objectives in creating the budget. Both finance
committee and senior staff participation is built into the process and a timeline is
established leaving adequate time for research, review, feedback, revisions, etc. before
the budget is ready for presentation to the full board. The annual budgeting process
should be documented, with tasks, responsibility assignments and deadlines clearly
stated. A good budgeting process also incorporates strategic planning initiatives and
stipulates that income is budgeted before expenses. Fixed costs are identified and related
to reliable revenue. Budgeting decisions are driven both by mission priorities and fiscal
accountability.
Write it down.
Many organizations "have" a budget process, but it is not written down. Putting your
process into writing creates a measurement tool against which you can monitor your
progress and creates a checklist to ensure thoroughness in the process. When written
down, the process becomes a durable management tool possessed by the organization
rather than an intangible thing in the head one or two individuals. Institutionalize the
process by writing it down. .
Decide who should be involved and when.
The executive director and program director(s) naturally play a significant role in the
budget process, but departmental staff members who have responsibility for adhering to
budgets should also play a role in creating those budgets. It builds buy-in and the process
is informed by those with direct experience "in the trenches". Unless you have a board
functioning as quasi-staff, usually staff members know more about operating details than
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board members, even very involved ones. In general, it is probably more efficient for
staff to create the early drafts of budgets and use the time of finance committee members
to review and vet the proposed drafts.
Establish an annualized timeline.
Start earlier. Many funders require budgets for the following year far earlier than small
and midsize organizations customarily get serious about budgeting. Aim for having the
budget approval by your board at least two months before the new fiscal year
begins. Earlier is even better, if feasible. You know your peak business cycle - integrate
the annual budget process into a time during the year when key participants, paid or
volunteer staff, have the time to focus on it.
List specific tasks with specific responsibility assignments.
Within the timeline, list tasks specifically, e.g., "Distribute departmental budget
worksheets and prior period financial data for reference" or "Research costs of database
software". Even though many people may contribute to a task, pick one person to take
leadership responsibility for making sure it happens. If the responsible person knows he
or she will be held personally accountable to have completed the assigned task by the
deadline, it is more likely to get done.
Ensure that budget line items and accounting line items are in sync.
Budget line items should align with accounting (financial statement) line items, and the
structure of the full operating budget should match the chart of accounts (the structure of
the accounting system), to ensure effective comparisons between budget and actuals. A
mismatch between budget items and accounting items creates extra work for
administrative staff or key volunteers who must translate between the two and risks
inconsistencies that undermine the usefulness of financial reports. Especially for
expenses, when accounting/financial statement line items exist without corresponding
budget line items, it can result in budget overages or erroneously reported line item
balances.
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When creating expense budget line items, be aware of how these internal line items
translate to specified line items for outside reporting requirements such as the IRS 990,
common funder application formats, industry surveys, and agency data gathering such as
the Cultural Data Project. While these should not dictate precisely how you construct
your budget, being able to easily cross-walk your items to the required items will
facilitate meeting these reporting requirements more accurately and will use staff or
volunteer time more efficiently.
Develop worksheets, templates, and tools that promote inclusion of all relevant
budget components and facilitate "what if" scenarios.
Work part-to-whole: The format of the budget to be presented to the board need not have
the level of detail that staff or finance committee members see. Using detail worksheets
(examples listed below) as tools to build a "Full Budget" and a "Summary Budget"
allows staff and finance committee members to go deep into the trees while presenting
the forest to the board.
Use the detailed budget worksheets to prompt deeper thinking about budget components
and to help ensure nothing is forgotten. Link these worksheets, or workbook tabs, to a
Full Budget sheet in a single, multi-tab workbook. For instance, for the
budget/accounting line item of "Insurance" a detail budget worksheet could prompt for
the various types of insurance to be carried by the organization such as general liability,
directors & officers, vehicle insurance, etc. The cost of each is entered in the detail
worksheet and added together for the total insurance budget amount in the Summary
Budget via a formula linking the detail to the summary. A detailed Earned Revenue
worksheet might include variable factors such as # of
events/classes/programs/concerts/venues/beds, etc., # of participants/clients, prices, %
capacity, discounts, etc. allowing staff to play out what-if scenarios by changing these
variables to see the resulting impact on the Full Budget.
A detailed worksheet for Contributed Revenue would include a list of previous

institutional donors and individual donor campaigns with prior gift amounts that would
help staff to predict which of these could be depended upon for the upcoming
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year. These details would accumulate and link to the line items for Government,
Foundations, Corporations, and Individuals in the Full Budget, so that the impact of any
changes to the detail worksheet would flow through. Temporarily Restricted
contributions and releases should be included in a separate section and tracked carefully
to ensure that releases to unrestricted are budgeted appropriately. In-kind contributions
can be included on this worksheet or on a separate one, depending on the quantity and
complexity of such contributions. See Budgeting Terms & Concepts.
A detailed Personnel worksheet would list each paid position with annual salary and
would be set up to automatically calculate formula-driven related expenses such as
Federal payroll taxes and other formula-driven fringes (e.g., state unemployment,
workers' compensation, pension contributions, etc.). A formula on this worksheet to
calculate % salary raises would allow management to see the difference in impact of 2%
vs. 5% increase on the overall budget. This worksheet, or a separate one, would also
include a list of fee-paid contractors the organization regularly engages such as
consultants, accountants, designers, teachers, counselors, social workers, researchers,
interns, etc. that would also link in total(s) to the summary budget.
A detailed Non-Personnel Expense worksheet would provide the opportunity to list the
various organizational business expenses (bank fees, credit card merchant charges, dues
& memberships, insurance, interest, licenses, registrations) office and general expenses
(conferences & meetings, printing jobs, copying, mailings/postage, supplies, telephone
and technology), occupancy (rent, utilities, maintenance, security) and trips (local and
long distance travel, transportation, accommodations, per diems), as well as any
specialized program-related expenses. Other detail worksheets for Capital Purchases, In-
Kind Contributions, and special worksheets to suit the specific departmental needs of
your organization can be created as necessary and linked to the Full Budget.
It may seem obvious, but a general statement of your organization's approach and
expectations sets the tone not only for the process of creating the budget, but also for
implementing it. A general budgeting policy might state that: The organization will strive
to create surplus budgets that feature realistic revenue projections and conservative
expense projections;
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Income and expenses will include the budget impact of strategic initiatives;
a) The balanced budget will include depreciation expense and an amount (or specific %
surplus) to increase cash reserve as determined by the organization's multi-year
capital budget
b) All budget line items will be allocated to the organization's programs, administrative
and fundraising activities using a reliable and defendable calculation method.
c) All budget line items (except non-cash depreciation) will be estimated on a cash flow
basis by month and so entered into the accounting software to assist with producing
year-end projections and in monitoring cash flow.
5.2 Advantages and Disadvantages
The advantages of budgeting include:
Planning Orientation
Profitability Review
Assumptions Review
Performance Evaluation
Funding Planning
Cash Allocation
Bottleneck Analysis
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1) Planning orientation.
The process of creating a budget takes management away from its short-
term, day-to-day management of the business and forces it to think longer-term.
This is the chief goal of budgeting, even if management does not succeed in
meeting its goals as outlined in the budget - at least it is thinking about the
company's competitive and financial position and how to improve it.
2) Profitability review.
It is easy to lose sight of where a company is making most of its money,
during the scramble of day-to-day management. A properly structured budget
points out what aspects of the business produce money and which ones use it,
which forces management to consider whether it should drop some parts of the
business, or expand in others.
3) Assumptions review.
The budgeting process forces management to think about why the
company is in business, as well as its key assumptions about its business
environment. A periodic re-evaluation of these issues may result in altered
assumptions, which may in turn alter the way in which managements decides to
operate the business.
4) Performance evaluations.
You can work with employees to set up their goals for a budgeting period,
and possibly also tie bonuses or other incentives to how they perform. You can
then create budget versus actual reports to give employees feedback regarding
how they are progressing toward their goals. This approach is most common with
financial goals, though operational goals (such as reducing the product rework
rate) can also be added to the budget for performance appraisal purposes. This
system of evaluation is called responsibility accounting.
5) Funding planning.
A properly structured budget should derive the amount of cash that will be
spun off or which will be needed to support operations. This information is used
by the treasurer to plan for the company's funding needs.
6) Cash allocation.
There is only a limited amount of cash available to invest in fixed assets
and working capital, and the budgeting process forces management to decide
which assets are most worth investing in.
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7) Bottleneck analysis.
Nearly every company has a bottleneck somewhere, and the budgeting
process can be used to concentrate on what can be done to either expand the
capacity of that bottleneck or to shift work around it.
The disadvantages of budgeting include:
Time Required
Gaming the system
Blaming for outcomes
Expense Allocation
Spend it or loose it
Financial Outcomes
Strategic Rigidity
1) Time required.
It can be very time-consuming to create a budget, especially in a poorly-
organized environment where many iterations of the budget may be required. The
time involved is lower if there is a well-designed budgeting procedure in place,
employees are accustomed to the process, and the company uses budgeting
software. The time requirement can be unusually large if there is a participative
budgeting process in place, since such a system involves an unusually large
number of employees.
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2) Gaming the system.

An experienced manager may attempt to introduce budgetary slack, which
involves deliberately reducing revenue estimates and increasing expense
estimates, so that he can easily achieve favorable variances against the budget.
This can be a serious problem, and requires considerable oversight to spot and
eliminate.
3) Blame for outcomes.

If a department does not achieve its budgeted results, the department
manager may blame any other departments that provide services to it for not
having adequately supported his department.
4) Expense allocations.
The budget may prescribe that certain amounts of overhead costs be
allocated to various departments, and the managers of those departments may take
issue with the allocation methods used.
5) Spend it or lose it.

If a department is allowed a certain amount of expenditures and it does not
appear that the department will spend all of the funds during the budget period,
the department manager may authorize excessive expenditures at the last minute,
on the grounds that his budget will be reduced in the next period unless he spends
all of the amounts authorized in the current budget.
6) Only considers financial outcomes.

Budgets are primarily concerned with the allocation of cash to specific
activities, and the expected outcome of business transactions - they do not deal
with more subjective issues, such as the quality of products or services provided
to customers. These other issues can be stated as part of the budget, but this is not
typically done.
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7) Strategic rigidity.
When a company creates an annual budget, the senior management team
may decide that the focus of the organization for the next year will be entirely on
meeting the targets outlined in the budget. This can be a problem if the market
shifts in a different direction sometime during the budget year. In this case, the
company should shift along with the market, rather than adhering to the budget.
5.3 Estimating Project Budget
This step involves estimating the costs of all of the resources that will be charged
to the project including: labor, equipment, materials, services, and any contingency costs.
In the early days of a project, estimating costs can be difficult particularly if there is little
or no historical data from previous projects of a similar nature. There are various tools
and techniques that can help with this but there is no substitute for experience. As the
project progresses, more information becomes available and the degree of uncertainty
naturally falls.
One basic assumption that needs to be made when estimating project costs is whether the
estimates will be limited to direct project costs only or whether the estimates will also
include indirect costs. Indirect costs are those costs that cannot be directly traced to a
specific project and therefore will be accumulated and allocated equitably over multiple
projects by some approved and documented accounting procedure.
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Cost estimates are influenced by numerous variables such as labor rates, material
costs, inflation, risk factors, and other variables. Expert judgment, guided by historical
information, provides valuable insight about the environment and information from prior
similar projects. Expert judgment can also be used to determine whether to combine
methods of estimating and how to reconcile differences between them.
Analogous Estimating
Analogous estimating uses the values of scope, cost, budget, and duration or
measures of scale such as size, weight, and complexity, from a previous, similar project
as the basis for estimating the same parameter for this project. It is most often used in the
early stages of a project when there is little else to base the cost estimates on. It is a
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relatively quick and straightforward method but is less accurate than bottom-up
estimation. The accuracy of the estimate depends upon how similar the activities are and
whether the team member who will perform the activity has the same level of expertise
and experience as the team member from the previous project.
Analogous estimating is typically a form of expert judgment that is most reliable when
the previous activities are similar to the current activity and when the team members
preparing the estimates have the necessary experience.
Parametric Estimating
Another technique that can be used is parametric estimating, this is used to

calculate the cost when the productivity rate of the resource performing the activity is
available. You can use the following formula: Activity cost = Units of work in the
activity / Productivity rate of the resources.
For example, if a contractor charges $5000 to build 100 yards of security fence, the cost
calculation can be performed as follows:
This technique relies on the statistical relationship that exists between a series of
historical data and the variables in question. When this data is being drawn from a large
body of historical data taken from similar projects, then it can yield accurate estimates.
It provides several advantages as an estimating technique for example: It allows estimates

to be prepared in much less time than required by more detailed techniques. It requires
quantitative inputs that are linked to algorithms providing quantitative outputs. This
means that all costs are traceable.
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If two estimators input the same values for parameters, they will get the same resulting
cost. Parametric models also provide a consistent estimate format and estimate
documentation. Parametric models provide costs for a range of input values,
extrapolating to derive costs for projects of a different size or nature than you may have
history for. The models highlight the design parameters used, and can provide key
statistical relationships and metrics for comparison with other projects.
The disadvantages of this method are:
a) Models will not exist for activities until there is a sufficiently large experience base
for the activity. Basing estimates on work that is only vaguely comparable will yield
inaccurate estimates.
b) Physical parameters, for example 'number of bricks laid', 'area of trees cleared' or
'number of widgets produced' are far more meaningful than non-physical parameters
for example, the 'number of lines of code' in a software project.
c) Improved technology or working practices may make the historical data obsolete. As
well as increased computing power this could include things like new plant and
equipment or a completely new way of doing the job.
Three-point Estimating
Three-point Estimates address the issue of uncertainty in estimating the activity duration.
This uncertainty can be calculated by making a three-point estimate in which each point
corresponds to one of the following estimate types:
a) Most Likely Scenario (ML) - the activity duration is calculated in most practical
terms by factoring in resources likely to be assigned, realistic expectations of the
resources, dependencies, and interruptions.
b) Optimistic Scenario (O) - this is the best-case version of the situation described in the
most likely scenario.
c) Pessimistic Scenario (P) - this is the worst-case version of the situation described in
the most likely scenario. We then find the average, but we first weight the Most
Likely estimate by 4.
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The formula is (O + (4*ML) + P) / 6. We must divide by six because we in effect have

six different estimates (although three of these estimates are the same number). We are
averaging (O + ML + ML + ML + ML + P) / 6.
Reserve Analysis
Cost estimates may include contingency reserves (sometimes called contingency

allowances) to account for cost uncertainty. The contingency reserve may be a percentage
of the estimated cost, a fixed number, or may be developed by using quantitative analysis
methods.
One method of calculating the contingency reserve is to take a percentage of the original
activity cost estimate, although it can also be estimated by using quantitative analysis
methods. When more information about the project becomes available, the contingency
reserve can be reduced or eliminated. Contingency should be clearly identified in cost
documentation.
Cost estimating methods may include analysis of what the project should cost, based on
the responsive bids from qualified vendors. Where projects are awarded to a vendor
under competitive processes, additional cost estimating work can be required of the
project team to examine the price of individual deliverables and to derive a cost that
supports the final total project cost.
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Activity Cost Estimates are quantitative assessments of the probable costs required to
complete project work. They are estimated for all resources that are applied to the activity
cost estimate including, direct labor, materials, equipment, services, facilities,
information technology, and special categories such as an inflation allowance or a cost
contingency reserve. They should also provide a clear and complete understanding of
how the cost estimate was derived including: the basis of the estimate, all assumptions
made, any known constraints, indication of the range of possible estimates, and the
confidence level of the final estimate.
5.5 Learning Curve
The working experience is one of the important factors, which enhance the
efficiency, and effectiveness of operations of any organization. Efficiency is concerned
with minimization of input for any given level of output or maximization of output for
any given level of inputs. Effectiveness is concerned with doing the right thing in a right
way. It refers to success or otherwise in achieving objectives. It is mainly concerned with
output without relating that output to the level of inputs used to generate that output.
Then a new product or new machine or a new technology" is installed workers will have
to learn how to use it efficiently and effectively. Using the initial periods hours used and
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materials consumed will be high. As they continue producing the product or using the
machine technology" they enhance their experience through the process of learning
and hence average cost per unit or batch" will be reduced. However there is a limit to this
learning effect. As more units or batches" are produced, workers will continue to learn
the techniques and principles of producing the product or using the machine or
technology" but it will reach a time where there will be nothing new to learn. This will
be the end of the learning curve effect on the usage of materials, labour hours and
machine hours.
The actual Effect of the Learning process
We have seen elsewhere in this sub topic, as the experience is enhanced, the
productivity is improved; however the actual effect of learning on the cost differs from
one cost item to another. The costs, which are most likely to be affected by the learning
curve effect, include labour, power, and related overheads. The costs which may be
affected to lesser extent or may not be affected at all include materials, supplies, selling,
and packaging. Any fixed costs are not affected by the process of learning.
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Chapter 6: Trend Analysis of Sunil’s Tutorial
A trend analysis is an aspect of technical analysis that tries to predict the future
movement of a stock based on past data. Trend analysis is based on the idea that what has
happened in the past gives traders an idea of what will happen in the future. There are
three main types of trends: short-, intermediate- and long-term.
Trend analysis tries to predict a trend such as a bull market run, and ride that trend until
data suggests a trend reversal, such as a bull-to-bear market. Trend analysis is helpful
because moving with trends, and not against them, will lead to profit for an investor.
A trend is the general direction the market is taking during a specified period of time.
Trends can be both upward and downward, relating to bullish and bearish markets,
respectively. While there is no specified minimum amount of time required for a
direction to be considered a trend, the longer the direction is maintained, the more notable
the trend.
Trend analysis is the process of trying to look at current trends in order to predict future
ones and is considered a form of comparative analysis. This can include attempting to
determine whether a current market trend, such as gains in a particular market sector, is
likely to continue, as well as whether a trend in one market area could result in a trend in
another. Though an analysis may involve a large amount of data, there is no guarantee
that the results will be correct.
Using Trend Analysis
In order to begin analyzing applicable data, it is necessary to first determine

which market segment will be analyzed. An example of sectors can include a focus on a
particular industry, such as the automotive or pharmaceuticals sector, as well as a
particular type of investment, such as the bond market. Once the sector has been selected,
it is possible to examine the general performance of the sector. This can include how the
sector was affected by internal and external forces. For example changes in a similar
industry or the creation of a new governmental regulation would qualify as forces
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impacting the market. Analysts then take this data and attempt to predict the direction the
market will take moving forward.
Trend Following
Trend following is a trading system based on using trend analysis and following
the recommendation produced to determine which investments to make. Often, the
analysis is conducted via computer analysis and modeling of relevant data, and is tied
to market momentum.
Trend:
A trend is the general direction of a market or of the price of an asset, and trends
can vary in length from short to intermediate, to long term.
As a general strategy, it is best to trade with trends, meaning that if the general trend of
the market is headed up, you should be very cautious about taking any positions that rely
on the trend going in the opposite direction. A trend can also apply to interest rates,
yields, equities and any other market that is characterized by a long-term movement in
price or volume.
The trend is your friend. This is rule of law for many traders. Following the trend is one
way traders attempt to predict the future direction of an asset’s price
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Trend Lines
One tool traders use to identify a trend in stock price is the trend line. It is a line
drawn between the high and low point for a stock over a period of time. If the stock price
goes up from $10 to $20 to $30 over a three year period, the analyst can plot a line from
$10 to $30 starting in year one and ending in year three. The first year marks the first plot
in the series it is the baseline price of $10. The second year represents the beginning of
the trend at $20, and the third year marks the continuation, or possibly the end of the
trend, at $30. In this way, trend lines can be used to either predict the next data point
along the trend or look for a reversal of the trend.
Trend lines can also be used to form a channel marked by two lines. One line is created
by trends in the highs for the stock. Another line is created with trends in the lows for the
stock. The price is then expected to trade in a range between these two lines to form a
channel.
Trending Market
A market that is trending in one direction or another. A bull market is trending

upward, while a bear market is trending downward. A trending market can be classified
as such for either the short, mid or long term'
Trending markets are of primary interest in technical analysis. Technical analysts

maintain that trending markets occur with some degree of regularity and predictability.
The ability to correctly discern these trends can have a substantial impact on investment
returns.
Trend Trading
Trend trading is a trading strategy that attempts to capture gains through the
analysis of an asset's momentum in a particular direction. The trend trader enters into
a long position when a stock is trending upward (successively higher highs). Conversely,
a short position is taken when the stock is in a down trend (successively lower highs).
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This strategy assumes that the present direction of the stock will continue into the future.
It can be used by short-, intermediate- or long-term traders. Regardless of their chosen
time frame, traders will remain in their position until they believe the trend has reversed -
but reversal may occur at different times for each time frame.
Stock Analysis
Stock analysis is a term that refers to the evaluation of a particular trading

instrument, an investment sector or the market as a whole. Stock analysts attempt to
determine the future activity of an instrument, sector or market. There are two basic types
of stock analysis: fundamental analysis and technical analysis. Fundamental
analysis concentrates on data from sources including financial records, economic reports,
company assets and market share. Technical analysis focuses on the study of past market
action to predict future price movement.
Stock analysis is a method for investors and traders to make buying and selling decisions.
By studying and evaluating past and current data, investors and traders attempts to gain
an edge in the markets by making informed decisions. Many people who subscribe to
fundamental analysis don't hold much faith in technical analysis, and vice versa.
Technical Analysis of Stocks and Trends
Technical analysis of stocks and trends is the academic study of historical chart
patterns and trends of publicly traded stocks. Technical analysis of stocks and trends
employs the use of tools such as bar or candlestick charts and trading volumes to
determine the future behavior of a stock. Much of this practice involves discovering the
overall trend line of a stock's movement. Technical analysis of stocks and trends has been
used by serious traders for decades. Although it does not guarantee success and is not
100% accurate, it is still one of the two key methods of analyzing stock prices, along
with fundamental analysis. Technical analysis of stocks and trends employs chart
patterns, such as head-and-shoulders formations and drop-base-rallies.
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Chapter 7: Budget Analysis
7.1 Factors affecting Budget

1) Previous year:
A] Capital expenditure:
Furniture: Furniture is a fixed asset and keeps on depreciating.
Depreciation is calculated at 20% by SLM.
B] Variable Expenditure
Books & Stationary: Books & Stationary are variable expenses and keep on varying year
after year and throughout year.
2) Future Year:
a) Inflation: Inflation is the percentage change in the value of the Wholesale Price
Index (WPI) on a year-on year basis. It effectively measures the change in the prices
of a basket of goods and services in a year. In India, inflation is calculated by taking
the WPI as base
b) Competitors: Competitors affect budgeting in various ways like the price at which
they are offering their service of teaching and the quality of their teachers etc.
3) Other Factors:
a) Revenue
Budget predictions are impacted when actual revenue received is not as much as
originally anticipated. External factors negatively affecting assumed revenue might
include an economic downturn, unexpected competition causing lowered sales or an
inability to sustain the level of growth needed. Internal factors such as inadequate
collections and poor accounts receivable practices could also impact revenue.
Aggressive projections that assume a high rate of growth or increased revenue have a
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much greater potential for inaccuracy than conservative estimates based on data from
previous years.
b) Market Conditions
The economy and current market conditions can impact the financial forecast in
several ways. Changes to the inflation rate and stock market conditions directly affect
the organization's net worth and its ability to generate funds or loans. If the company
relies heavily on investments as a funding vehicle, then poor stock market
performance will have a direct, negative effect on budget predictions. Likewise, if the
rate of return on investments outperforms the prediction, then the budget will have a
surplus.
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Chapter 8: Conclusion
If properly analyzed and interpreted Budgeting can help a firm to create a

spending plan for their money and Budget Estimation can give them an approximate cost
and can also provide them with an approximate income taking the past years into
consideration. Not accurate enough to provide a basis for a firm commitment, it
represents only the budget maker's understanding of the scope and expense of what needs
to be done. Once you create your first budget, begin to use it and get a good feel for how
it can keep your finances on track, you may want to map out your spending plan or
budget for 6 months to a year down the road. By doing this you can easily forecast which
months your finances may be tight and which ones you'll have extra money. You can
then look for ways to even out the highs and lows in your finances so that things can be
more manageable and pleasant.
I have studied the Budget Estimation of Sunil’s Tutorial with the help of Trend Analysis.
Trend analysis is based on the idea that what has happened in the past gives traders an
idea of what will happen in the future. We have taken the past data of the Number of
Students, Gold Price and Cost of Inflation Index. Using this past data we have formed a
Trend line and derived a formula that can help us predict the future values and have a
cost or income estimate. This will be of help to form future plans and set goals
accordingly.
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Chapter 9: Bibliography
1) Books of Accounts of Sunil’s Tutorial
2) Sunil’s Tutorial – Company Reports
3) Series of Internet Websites and Blogs:

a) Accounting Coach
b) Accounting Tools
c) Investopedia
d) Accounting Verse
e) Accounting for Management
f) Ready Ratios
g) My Accounting Course
h) Wikipedia
i) Slide Share
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Budget Estimation of Sunil’s Tutorial

Chapter 1: Introduction and Research Methodology ................................................... 3

Chapter 2: Sunil’s Tutorial – Company Overview ........................................................ 7

Chapter 3: Introduction to Budgeting .......................................................................... 11

Chapter 4: Budget Variance .......................................................................................... 25

Chapter 5: Budgeting and Estimating Cost.................................................................. 33

Chapter 6: Trend Analysis of Sunil’s Tutorial............................................................. 48

Chapter 7: Budget Analysis ........................................................................................... 55

Chapter 8: Conclusion .................................................................................................... 57

Chapter 1: Introduction and Research Methodology

1.1 Project Overview

1.1 Research Methodology

1) To understand how to do Budget Estimation

1.2 Limitations of the Project Overview

1) The information provided may not be completely reliable.

Chapter 2: Sunil’s Tutorial – Company Overview

2.1 History of Sunil’s Tutorial

Sunil’s Tutorial is a private academic coaching program founded by Mrs. Sunita

Year Method of Promotion Cost

Rs.60 per thousand

Rs.1,20,000 for the

1995 Transport Services (Contessa Car and car.

Incorporation of Computers (3 HP Rs.45,000 each.

2.2 Objectives and Advantages

2.3 Unique Selling Proposition

1) Personal attention to Students as there are small batches.

2.4 The Road Ahead

With the increasing number of admissions there is an increase in space issues.

2.5 Features of Sunil’s Tutorial

1) Impart knowledge with understanding

2.6 Work Culture

To surpass client expectations consistently.

Integrity and Transparency:

To be ethical and sincere in all our transactions.

To be objective and transaction-oriented, and thereby earn trust and respect.

Chapter 3: Introduction to Budgeting

Budgeting is a process. This means budgeting is a number of activities performed in

In a business, the budgeting for operations will include the following:

1) Preparing estimates of future sales

3.1 Principles and Importance of Budgeting

1) Be Conservative not Optimistic

2) Team Work and Consultation

3) Allow plenty of Time

6) Get Sign Off

3.2 Characteristics of Budgeting

1) The Budget Must Address the Enterprise’s Goals

2) The Budget Must be a Motivating Tool

3) The Budget Must Have the Support of Management

4) The Budget Must Convey a Sense of Ownership

5) The Budget Should be Flexible

6) The Budget Should be a Correct Representation

7) The Budget Should be Coordinated

3.3 Types of Budget

Some of these factors are:

a) Past sales figures and trend

It is made by the production manager keeping in mind the following important

a) The sales budget

The production budget is often divided into several budgets:

The factory or manufacturing overheads can be divided into three categories:

The Institute of Cost and Management Accountants, England defines master

3.4 Budget Utility

2) Event management budget

4) Personal or family budget:

Elements of a personal or family budget usually include fixed expenses, monthly