Page 26 - Budgeting for Managers

photocopy department (“the print shop”) of a medium-sized
company (Table 1-1). It’s January 2003 and we need to create
an expense budget for the year.
Print Shop Expenses Budgeting: Why and How 9
2002 Actual
2003 Estimated
Equipment leases $3,600
Toner 900
Plain paper 300
Special papers 60
Equipment purchase 600
Service contracts 1,500
Equipment repair 350
Miscellaneous 150
Sales tax 142
Total Expenses $7,602
Table 1-1. Print shop expenses (2002)

Step 2: Understanding Each Line
Preparing a good budget is detail work. We need to do more
than say, “I guess we’ll spend the same next year.” We need to
know why we spent what we did and think about what will
change. So we examine each line and, using our own memory,
meetings with others, and reviews of receipts and contracts, we
understand why we spent what we did.
For example, why did we spend $3,600 on equipment leas-
es? A check of the lease contracts shows that all three
machines are on a five-year lease-purchase plan at $100 per
month. Why did we spend $300 on plain paper? We can check
purchase orders, inventories, and copier counters and discover
that we made about 5,000 copies per month, which used 10
reams of paper at a cost of about $25. We ask similar questions
about each line item.