Page 59 - Budgeting for Managers

Budgeting for Managers
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Trend A pattern of
you find that records were
change over time.We see
not kept well. You know
it in records of the past
that the shop spent
and use it to predict or make esti-
mates for the future. next year. Unfortunately,
$3,000 on paper, but toner
was bought from several
stores and the records weren’t kept. How do you figure out how
much toner you’ll need this year?
Going back to earlier years, you find that when the copy
shop spent $3,000 on paper, it spent $750 on toner and when it
spent $2,000 on paper, it spent $500 on toner. You see the rela-
tionship: for every $1,000 the copy shop spends on paper, it
spends $250 on toner. For this year, you can estimate that the
toner expense will be 25% of the paper expense. Logically, this
relationship makes sense because the amount of paper used
and the amount of toner used are both results of the number of
copies made.
Gathering Past Figures
There are three sources of past figures: actual numbers from
the past, prior estimates, and past tax returns. The actual fig-
ures are definitely the best choice, because they tell us what
really happened. If they are not available, we should look at
estimates and tax returns. Estimates, of course, might have

Numbers Don’t Create Numbers
When working with trends and relationships, it’s impor-
tant to remember that we’re not saying that past num-
bers cause future numbers or that one number causes another.
Management decisions and business actions determine the numbers.
The patterns in the numbers, such as trends, are results, not causes.
For example, we can determine that the relationship between paper
expenses and toner expenses is a ratio of 4:1, but if the price of paper
goes up, then that ratio would change, so our estimate would have to
change. Be sure you understand what’s actually happening in the busi-
ness that creates trends and relationships.